How to turn start-ups into big business
Key challenge for UK + Golf + Goodbye Steve Rowe
The UK has struggled to turn promising ideas into promising start-ups, struggled to turn promising start-ups into medium-sized businesses and struggled to turn medium-sized businesses into big businesses. But times are changing and a lot of intelligent work is going into this. One of the most pleasant surprises about doing Off to Lunch so far is how much optimism there is among people I speak to about this topic. A new generation of founders are growing their businesses into a promising ecosystem…
For a quick and somewhat crude example of how the UK has struggled at this just look at the five biggest companies in the FTSE 100 compared to the S&P 500 in the US and when they were founded…
FTSE 100
Shell (Formed by merger in 1907, original businesses started in 1833)
AstraZeneca (Formed by merger in 1999, started in 1913)
HSBC (Founded 1865)
Rio Tinto (Founded 1873)
Unilever (Formed by merger in 1929, started in 1860)
S&P 500
Apple (Founded 1976)
Microsoft (Founded 1975)
Alphabet (Founded 1998)
Amazon (Founded 1994)
Tesla (Founded 2003)
The UK has missed out on the opening wave of the tech boom, but it does not need to miss out on the next one.
Real progress is now being made in converting promising ideas into actual businesses and converting small businesses into medium-sized businesses – start-ups into scale-ups to use the industry term. The first of these areas is being led by new investment firms such as Oxford Science Enterprises and Northern Gritstone, which are putting money and their expertise into promising ideas coming out of universities. The UK has world-leading universities, but while the US was able to turn work at Stanford University into Silicon Valley, Oxford and Cambridge have not delivered something on the same scale….yet
The second area is being led by venture capital firms and other investment vehicles that are putting a special focus on helping start-ups become scale-ups. There is now widespread recognition among VCs that they need to do more than just provide money to founders. Some are therefore focused on advising start-ups about how to transition to the next phase. As one VC boss said to me, this is the phase where the founder no longer hires everyone personally, the business is so big that others start doing the hiring for them. This requires different managerial skills, including keeping on top of ever-more complex accounts.
This transition can be easier for a business in the US because the domestic market is so much bigger due to the size of the population. This can help a business navigate mistakes because revenue and growth are still coming in. But this is only part of the reason why businesses in the UK have found it far more difficult. Israel, a much smaller country, has done better in converting promising start-ups into bigger businesses. There have been managerial failings in the UK.
The good news is that the UK created a record number of unicorns - businesses valued at $1 billion - last year. The total of 29 is a quarter of all unicorns in the UK and was well ahead of other European countries. Not only does this show that 2021 was an extraordinary year, but it is evidence of progress. Fintech is an area where the UK is particularly thriving, with Checkout.com, Revolut and Starling among the unicorns. The expertise these businesses have acquired should spill out into other start-ups as people leave to set up their own ventures.
One of the VC firms looking to help promising start-ups make the transition is the Clean Growth Fund. This was set up in 2020 and has raised £101 million to invest in clean technology ventures, including £20 million from the government. It has invested in seven businesses so far including Tepeo, which makes zero-emission boilers, Piclo, which makes it easier for households to sell energy back to the grid, and Indra, which is making electric car chargers for homes.
"We are good at innovation, not so good at commercialisation,” said Beverley Gower-Jones, managing partner of the CGF, when I spoke to her this week about the UK. “We need to grow and nurture serial entrepreneurs who have done it before and can do it again. You can't just give an entrepreneur money and think that’s enough.”
Gower-Jones is optimistic about the prospects for the UK clean-tech industry and turning these promising start-ups into big businesses, partly because the need to lower emissions is such an urgent challenge.
"This is the first industrial revolution under a timeclock. We need to get on with it. We don't have time to wait. This needs focus from everyone,” she said.
"There is a positive message that is important to take from this. Humans have a tendency to leave things to the last minute, but we are at the last minute. I am optimistic. The innovation that is coming through is fantastic. The ingenuity is humbling.”
A quick thought….
The rebel Saudi-backed golf series LIV Golf is a reminder that even the most stable businesses can be undone when there is money and ambition playing to different rules. The PGA Tour was founded in 1929 and has basically run the main golf tour and events since then. However, LIV has come along, offered millions of dollars to the best players, and shaken up the old order, with Dustin Johnson, Phil Mickelson and Lee Westwood among the professionals to sign-up. LIV Golf is riddled with controversy because it is backed by the Saudi sovereign wealth fund and I am not getting into that debate. However, the fact it has caused such ripples already just demonstrates that industries where there is a potential imbalance between stakeholders are prone to upheaval even if they have been done the same way for many years. In this case the players who have signed up for LIV Golf have done so because they don’t think they are getting a fair share of golf’s revenue at present. Money talks, even when it is riddled with flaws..
You should also read this
A national rail strike on June 21, 23 and 25 is going to cause serious disruption in the UK (BBC)
Sticking with rail, the government has scrapped part of the High Speed 2 rail project that would have linked the new line to the existing West Coast Main Line. The £3 billion Golborne link was due to cover a 13-mile stretch in Cheshire and Manchester. Local residents who campaigned against the spur are delighted, but councils in the north-west of England and Scotland are not. There are now big questions about how HS2 trains will run north of Manchester given the capacity constraints this will put on the existing network, especially around Crewe. The government has said it will explore alternatives, but this is not what levelling-up looks like. This may or may not be relevant, but the spur was due to run through the constituency of Sir Graham Brady, head of the 1922 Committee which ran the vote of confidence in Boris Johnson, who has campaigned against the project… (Manchester Evening News)
Apple didn’t announce augmented reality glasses at its WWDC event this week, but rumours remain that the company is close to launching the product. Nonetheless, the lesson from history is that excitement and bold predictions about new technologies rarely translates to a product breaking through. As Shira Ovida at the New York Times says in this article, new tech today is struggling to overcome this difficult question - what does this do that my phone can’t? (New York Times)
One thing Apple did announce – it is going to take on Klarna with its own buy now-pay later service. Good background piece here… (Telegraph, paywall)
In a week when Jamie Dimon, the boss of JP Morgan, said a “hurricane” may be about to hit the US economy, there have been lots of interesting observations from chief executives about the outlook for the world. You can read a round-up of their thoughts here (The Transcript)
Sam Bankman-Fried, the chief executive and founder of crypto trading platform FTX, has spent more than $30 million on political donations during the 2022 electoral primary cycle in the US amid a lobbying push by the crypto industry on regulation (The American Prospect)
Life for millennials has become dull, according to this column. Gigs are now about wellness rather than hedonism, people drink green juice rather than alcohol, and dating is about looking for “red flags” rather than butterflies. Oh, and everything is really expensive (New Statesman, paywall)
Chargers and cables that work in all smartphones, laptops, tablets and other devices should be here by 2024 after a deal by the European Union. This should mean no separate chargers for Apple, Samsung and other brands in the UK too… (TechCrunch)
Has email, smartphones, and automation actually led to everyone working harder because there are more demands on our time? Thought-provoking column by Sarah O’Connor. This is currently the best-read piece on the Financial Times website (FT, paywall)
Landlords in Manhattan are rejecting tenants unless they earn more than $160,000 a year (Quartz)
The Walmart heir Rob Walton has agreed a deal worth $4.65 billion to buy the Denver Broncos NFL team (Wall Street Journal)
And finally…
I was at Marks & Spencer’s leaving reception for Steve Rowe last night, where the outgoing chief executive got a wonderful send-off by the company, colleagues, family, friends, peers, advisers and the media.
Held at the Cloisters at Westminster Abbey, guests included the senior team at M&S and alumni such as former chairman Robert Swannell, Rowe’s predecessor Marc Bolland and former finance director (and now Asos chairman) Ian Dyson. Also in attendance were Ocado chief executive Tim Steiner, former Sainsbury’s boss Justin King (who is a non-executive director), John Lewis chairman Dame Sharon White, and many more…
Archie Norman, the M&S chairman, gave a great speech on Rowe’s extraordinary 39-year career at the company, which saw him rise from a Saturday boy on the shop floor of its Croydon store to the top job. Norman praised Rowe’s relentless work ethic and remarkable attention to detail. Rowe followed Norman with a great speech of his own, talking about how he will miss his Monday afternoon catch-ups with the chairman and how their deal with Ocado to take M&S food online will end up being one of the most significant things the company has done since it shifted from Penny Bazaar market stalls to high street shops in 1894.
Rowe’s father Joe was also on the M&S board (and was there last night) meaning the family followed in the footsteps of the company’s founding family, the Sieffs, in having two generations on the board. The £750 million Ocado deal, as well as other big decisions like closing shops, ensures that is not the only reason why Rowe is a key figure in M&S’s past, present and future.
Thanks for reading. Off to Lunch will be back on Friday for paying-subscribers only. If you want to read Friday’s newsletter, attend our events, and contribute to the work of Off to Lunch, then please sign up for a paid subscription below. Alternatively, please just spread the word!
Graham