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Simon Woodroffe, Dragons’ Den panellist and founder of YO! Sushi, and the FT’s Jonathan Guthrie answer readers’ questions on starting your own business.
This Q&A session is one of a series of events on FT.com to mark national Enterprise Week in the UK. For full coverage, including video interviews with leading entrepreneurs and more tips on how to pitch ideas, set up a business and operate in different cities, click here.
To read Simon Woodroffe’s comment piece, ‘Inspire the young and they will build our future’, click here.
I’ve spent the last 18 months setting up a fledgling software company with an old colleague. We’re now around three months away from a launch. We’ve been operating on a shoe string, but the majority of the investment has been our time, rather than money. If we both quit our full time jobs in order to ‘go for it’ then the work to date would have been complete in 3 months. Do you view this as a lack of commitment to the project, and that something fundamental is wrong with our belief in what we’re doing, or is this sound risk management/mitigation?
Simon Woodroffe: I think you are right - there are a lot of hours in the day to get both done and to have a bit of money coming in takes away anxiety, which in turn makes you feel good and focus on the work instead of worrying which as we know is debilitating.
Talking of hours in the day - I hope you have got rid of your TV - it makes an awful lot of time available!
Jonathan Guthrie: I suppose what worries me more than the commitment question is whether a rival got the chance to throw a curve round you and come to market with a similar product in the 13 months that you might otherwise have saved! Presumably you either did not think this was likely, or your projected sales are not so huge as to persuade you to throw in your day jobs immediately.
As to commitment, entrepreneurs who create large businesses generally have a very high level of self-belief. This helps them turn bad breaks to their advantage and sell their products or services to customers who might otherwise tell them to get lost.
At the same time, the media and government has a bias towards portraying company creation and ownership as an activity that must involves working long hours to create a business behemoth. In reality many entrepreneurs are relatively cautious people who believe they reduce risk by keeping their business to a manageable size. They make a good living and are sometimes able to work fewer hours than former colleagues who remain in salaried employment.
Why does the government not permit shareholders in pure unquoted R&D orientated companies to benefit from a lower rate of personal capital gains tax that investors in other unquoted and also all AIM companies enjoy? ie treat their shareholding as business assets. In my opinion it is a scandal and a result of pure laziness in the Treasury who do not bother to change the definition of business assets to amend this glaring anomaly.
Jonathan Guthrie: If your point is that the government should offer a better tax deal for investors in pure R&D plays to coax up depressingly low levels of UK corporate innovation, I can see a couple of objections. The first is that since 2000 for small companies, and 2002 for big ones there has been a system for reclaiming part of the value of R&D expenditure through tax credits. Loss-making smaller companies, unusually, are able to claim hard cash. The value thus reclaimed belongs ultimately to the shareholders, which the Treasury might argue is enough of a fillip.
Another problem might be that what constitutes R&D is open to considerable debate. Even within the R&D tax credit scheme there is said to be considerable variation in what different inspectors count as R&D.
Having said all that, the cock-up theory of government is often a convincing one. The tax system for enterprise is riddled with anomalies and this may simply be another example.
Simon Woodroffe: I didn’t know this and clearly it should. That said we have a better tax regime encouraging investment and reward than every other country in Europe so keep on encouraging the treasury - I find encouragement works the best - catch them doing it right and say so and then slip in yr addition on the side.
I used to write thank you notes to the teachers at my daughters school when they did something good - it worked wonders because nobody ever did and they felt great and appreciated and couldn’t do enough for you.
I have a meeting with a company where I am proposing an initiative that they could have on their website (I have no USPs but excellent networks for them). How do I make sure I can get them to take up the idea, and most importantly that they don’t push me out and take the idea themselves and leave me in the cold?! Chirag Upadhyay
Simon Woodroffe: You can’t. Non disclosures are not that strong. All you have is an idea - you can’t make money mostly out of an idea - you make money out of making things happen.
Jonathan Guthrie: You are caught in the classic bind that faces innovators who need the muscle of a big partner to get an idea off the ground. Your idea is worthless while that is all it remains, but you could lose control of it through the disclosure needed to convince a partner it is worthwhile. You have to make a value judgment over whether the potential partner is trustworthy, so you need to do some informal due diligence on them before you tell them too much. You also need to have plenty to bring to the party in getting the idea to work (it sounds as if you do).
If the initiative is website-based is there much to stop you going it alone? The internet has bulldozed away barriers to entry for many small businesses. The concomitant problem that it is just as easy for copycats to set up in competition.
What were the biggest challenges you faced in setting up your business?
Victoria Swainson, London
Simon Woodroffe: I think probably first the belief that it would work - rationally I knew it was high risk emotionally. I came to believe it would work and with that confidence came the money and the site which were the two major hurdles.
How long did it take you to become profitable?
Adrian Norman, Sevenoaks
Simon Woodroffe: We went into profit at the end of the first week in the sense that the first restaurant in Poland Street started to deliver a respectable return on our invested capital.
What are your 3 top tips for budding entrepreneurs?
Steve Ingram, Rochester
1 Get Rid of your TV
2 Ban your brain .......... from thinking about whether the idea will work and whether you should do it. Instead put in the work of developing and researching the project, knowing that you will not make the decision to proceed until you have more information and awareness. Most budding entrepreneurs sit at the starting line thinking “Shall I, shan’t I?” It is fine to write off small amounts of money and your time in several goes before you commit.
3 Talk about your ideas (unless they are patentable but very few are). People who do get things done - the act contrives to make things happen and garner support belief and enthusiasm.
I have some good ideas for starting a business but I also have young children and a mortgage to think about. I’m in a reasonably paid job at the moment and the decision to throw that all in to start on my own is proving very hard. Does this mean I’m never going to cut it as an entrepreneur, or do you have any tips for facing up to the decision and taking the plunge? Elliot Miller, Hertfordshire
Jonathan Guthrie: One strategy would be to imagine how much (or little) you might regret failing to set up your business when you are older. Some entrepreneurs have the spark from an early age, and never work in salaried employment. Others set up their own businesses after a long period of employment, sometimes in response to a career crisis. For example, bankers I talk to say redundant executives “delayered” out of their jobs in their forties often do very well by starting up businesses.
If you have young kids, one issue you may need to consider is a loss of family time in the first few years of your business. After that you might find you have much greater flexibility to fit in family commitments than when you were a wage slave.
One problem in the UK is that we have an unhelpfully judgemental culture in relation to business success and failure. There is a significant element of luck in whether businesses fly or not. We still tend to celebrate successes as something of a moral victory and failures as moral defeats. A more balanced attitude would make it easier for Brits to choose between enterprise and salaried jobs.
Simon Woodroffe: Essentially run the two things concurrently until you are much further on. Stop watching TV and socialising and start working on the project then it’ll become clear. If it were easy everybody would do it.
Given the weird and wonderful choice of candidates that get picked for reality TV shows such as Dragons Den etc. does it mean that the media coverage of the sector reflects badly on the professional, hard working and risk taking entrepreneurs out there that are in the process of raising Angel/Venture funds to back serious business ideas?
Damon Oldcorn, CEO, NicheGnat Ltd, Innovation Centre, Swindon, Wiltshire
Simon Woodroffe: Reality TV looks for entertaiment and confrontation at present. I had the same feelings at first and wanted to offer a more positive aspect. But I think it is encouraging in the sense that people including kids watch it and say “I could do better than that”.
What is actually 5 mins on air took over an hour usually of live recording (it’s all real by the way and no prior knowledge).
I am not doing this second series but look forward to seeing what happens - its pretty juicy by all accounts.
Jonathan Guthrie: I think I have to rally to the defence of Simon (who appeared on Dragon’s Den) who I personally would not describe as “weird”.
As a mere viewer I thought some of the pitchers seemed extraordinarily ill-prepared compared with people I see pitching at angel events. But there were some good ones in there too. The judges were often tough with people looking for funds. But the market for risk capital is just as tough when cameras are not rolling, even if rejections are more politely phrased.
Programmes such as Dragons Den have done a great deal to foster understanding of entrepreneurship and angel investment (the British Business Angels Association gave DD a gong at its awards this year). Any damage they have done reputationally is small in scale.
After a difficult period and after losing belief in yourself, how do you pick yourself up again? Jamie Walker
Simon Woodroffe: When that negative voice is saying all those negative things you have to act as if you are confident. Beating rejection is about making a game out of being willing to fail and punching the air when you have a few in the bag knowing that only through failure is a pathway that leads to success.
Just about everyone has been there and had those feelings - there is a point where you need to step beyond them and start teaching your brain to think positively. You are not alone in having been through this.
In Japan they don’t have a word for “Good Luck” but their equivalent word is “Keep Going”.
I graduated a couple of years ago and am now in full time employment. I have saved up a some of money (less than 100,000 GBP) and am thinking about starting my own business. What percentage do you think is responsible to invest and how much would you keep as a safety buffer?
Martin Keffler, Highgate, London
Jonathan Guthrie: Some entrepreneurs in trading businesses (for example IT distribution or recruitment consultancy) invest almost nothing, relying on paying rent, computer leases etc from cashflow. It’s hair-raising, but it can work. The real question is perhaps “How much do I need to invest to get this business off the ground?”
However if you do invest a significant part of your savings in your business, banks, investors and business customers (if you have them) are more likely to take you seriously because you have made a financial commitment to what you are doing.
Simon Woodroffe: My experience is that you will need the lot and some debt too unless it is a small project. That is for a personal start up - it shows investors commitment and is simply the way I see it unfolding most often.
Further on I hear talk of entrepreneurs risking a third of their wealth and I would put myself in that category. Of course the better off you become the less you end up risking of your own as you have a track record and reputation. Stelios bailed Easy Everything out using a fifth of his own wealth, a great deal of money considering the other personal investment he was in for.
Follow your instinct but at the start my guess is it’ll be more than you think and won’t feel neat and tidy and safe.
How focused was your business strategy before you started acting it out?
Katie Brown, Bromley
Simon Woodroffe: I had a pretty good idea but the front of the business plan said “If you want to make God laugh show him your business plan”. Life is what happens when you’re making other plans so as you step out on the path of setting up your new business, keep an eye out for some juicy fruit on the trees in the orchards you walk through.
For full coverage of national Enterprise Week, click here