by Real Business - Thursday, 30th August 2007

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Britain has changed. It’s okay to set up your own business. Start-up levels are at a record high. The economic arguments are won. But it wasn’t always so. “Younger entrepreneurs can’t have any idea just how bad economic conditions in this country had become by the seventies,” says one businessman who was among the 100 entrepreneurs and experts who responded to our survey about the key events in making Britain a more entrepreneurial society. “As a teenager, I remember studying by candlelight and getting fired from Woolworths because of power strikes. I learned to drive in a mustard coloured Austin Allegro where product innovation started and stopped with a square-shaped ‘Quadradesic’ steering wheel.” Sure, Britain ain’t perfect, but the climate’s as good as it’s ever been. Here’s why...

An enterprising prince
In 1972, the deputy head of the probation service for inner London, George Pratt, was interviewed on the radio. He described the miserable home lives and “cycles of deprivation” experienced by many of the young people that came through his office. “If only someone would befriend them, perhaps they would have a chance,” he said. One listener was Prince Charles. He called the great and the good of social policy to Buckingham Palace and, with his £7,400 severance pay from the Navy, kicked off what was to become The Prince’s Trust. The first grant went to two ex-offenders to run a fishing club. Since 1976, The Prince’s Trust has helped more than 400,000 young people. More than 50,000 businesses have been set up, with loans granted to the tune of £80.5m. The Prince’s Trust says it helps set up, on average, one new business every 30 minutes every working day. James Sommerville, co-founder of The Attik design agency, says: “Attik would not be in its position today – with offices all across the world, if The Princes’ Trust had not had the vision and confidence to make that modest investment in us back in 1986, when we were just two ex-art students, unemployed and sat in an attic bedroom in Huddersfield – with an idea. I wish there were more organisations like The Trust helping tomorrow’s businesses.”

The end of exchange controls
The abolition of exchange controls over capital movements in 1979 gave all UK companies and individuals a licence to export capital. By 1989 the annual gross outflow reached £33.1bn. It was a critical financial adjustment with long-term implications. Mike Warburton, a senior tax partner at the accountants Grant Thornton, says it was like “removing a straitjacket for many businesses.” Although some academics say it caused the biggest increase in unemployment since the Great Depression, the government of the day couched it in terms of a necessary structural economic change. Warburton remembers the timing: “North Sea oil was just starting to flow in large quantities. There was a real danger that inflation and the value of sterling would have risen out of control if the whole of this money had remained in the UK. Relaxing exchange controls allowed money to flow freely. Much of it went in long-term overseas investment which serves us well today. Just look at the number of multinational companies in the UK.”

An african general
When the Ugandan army commander Idi Amin ousted the incumbent president Milton Obote on January 25, 1971, a chain of events was set in motion. Amin, whose eight-year terror-regime managed to annihilate 500,000 people and bring the country to the edge of ruin, ordered around 60,000 Asians (“non Ugandans”) to leave the country. His brutal actions, though, were to unleash a generation of entrepreneurial talent in the UK. Harry Rawlinson, MD of Aqualisa, says it’s a tale of how to “turn disaster into triumph by hard work and astute business acumen.” We are still to appreciate this phenomenon fully, says Jonathan Simnett, vice-chairman of Brodeur Worldwide. “They showed an often unwelcoming, suspicious and complacent Britain how, with steely determination, people often left with almost nothing can start again and build up huge business.” Ram Gidoomal, author of The UK Maharajahs: Inside the South Asian Success Story, sees south Asian entrepreneurialism as a powerful mix of business flair, family involvement, sharp-eyed opportunism and an “entrepreneurial gene.”

Getting your money into business
The Business Expansion Scheme (BES), introduced under the Thatcher government, gave full tax relief for higher-rate taxpayers making investments in qualifying companies. The scheme ended on December 31, 1993, when it was replaced by the Enterprise Investment Scheme (EIS). The EIS permits someone to invest up to £150,000 a year in an an unquoted company and enjoy the benefit of juicy tax advantages, such as CGT exemption. The idea is to motivate private investors with an appealing tax break if they put money into risky, smaller ventures. Malcolm Durham, an accountant who runs his own family construction business, says such schemes were the first tax breaks to get money into entrepreneurial companies. Richard Parks, founder of The Red Tape, sees other benefits in such schemes: “With this money tends to come brains, experience and contacts – and these are just as useful to an entrepreneurial business as the money.”

Enter the troubleshooter
With his Healy-esque eyebrows and ample girth, John Harvey-Jones was unleashed on an unsuspecting business community by the BBC in 1989. Twice torpedoed during World War II, Harvey-Jones let off a few bombs of his own in Troubleshooter. A three-time winner of the “Industrialist of the Year” gong, he doubled the price of ICI shares after only 30 months as chairman, and turned a loss into a £1bn profit. The man knew business. The premise for the TV series was simple. Harvey-Jones was to go into a company he knew little or nothing about and kick everyone’s butt! It was an instant hit with viewers, although not all the featured businesses liked it quite as much. Steven Edwards, founder of Geneva Technologies and one of Britain’s top technology entrepreneurs, says that Troubleshooter showed the British that “there were a lot more sharp and focused minds in business than they’d realised.”

Taper money
Many of our respondents pointed to changes in the tax regime. Two favourites were the lowering of the higher rate of income tax to 40 per cent and the capital gain treatment of business assets. Says James Hughes, who runs his own financial services company, City Trading Post: “Entrepreneurs are able to reduce their taxation to ten per cent by taking advantage of the capital gains treatment of business assets, which allows them to invest their money in a business, then sell it on two years later with only a ten per cent tax bill on the gain. Inevitably, this is an attractive alternative to PAYE!” This, says Stuart Watson at accountants Ernst & Young, benefits “those who take the risks.” Chris Jenkins, who runs Wingrave Yeats, his own accountancy firm, says: “Nigel Lawson's reduction of higher rate income tax to 40 per cent in 1982 was critical. If we didn’t have lots of entrepreneurs staying in this country and thinking about making money, none of the other things would have happened as a consequence.”

The pill
In 1961, a Daily Express poll asked 1,450 housewives what they did during TV commercial breaks. Thirty per cent said they did some knitting, sewing or darning; 19 per cent did household chores; and 13 per cent got cooking. But, despite the dodgy polls, a revolution was starting. Introduced in the UK in 1961 for married women only, the pill is now used by 3.5 million women between the ages of 16 and 49. Take-up of the pill was fast. Between 1962 and 1969, the number of users rose from approximately 50,000 to one million. Today, worldwide, around 100 million women take the pill. It’s had a massive impact on the UK and working patterns. “The introduction of the pill in the sixties has had a dramatic impact offering more women the choice as to when and if they have children, and to plan their careers accordingly,” says Belinda Lighton of Knightsbridge Secretaries. It’s easy to see modern trends of working from home, flexi-time and personal employment contracts as a direct consequence of the invention of the pill.

The biggest bang
No, not the beginning of time. We mean the upheaval on the London Stock Exchange (LSE) when major changes in operation were introduced on October 27, 1986. Changes included the abolition of LSE rules enforcing a dual-capacity system, the allowance of member firms to be owned by an outside corporation and the abolition of fixed commission rates charged by stockbrokers to their clients. It also saw the introduction of an automated price quotation system. Okay, it all sounds very technical, but for many of our respondents, it was vital. “It had a profound effect on me and my peers,” says Stephen Watson, now MD of visual communications agency CTN. “We really felt that anything could be achieved – and we didn’t feel intimidated by money or finance,” he says. “The confidence of that time encouraged us to take risks, take life into our own hands and spurn employment in large companies – owned by other people!”

One woman alone
Margaret Thatcher was lucky. Having barely arrived as MP for Finchley in July 1958, she came second in the annual ballot for time to introduce a private member’s bill. Unusually, her maiden speech wasn’t the normally forgettable “thanks to everyone that got me here.” Instead her speech and proposed bill were widely praised. And, crucially, the bill brought her into contact with Keith Joseph, who was to become one of the chief architects of the Thatcher economic revolution. He was deputed to help her take the bill through the legislative process. This was, in the words of Thatcher biographer Hugo Young, “a connection that became one of the most formative political relationships of modern times.” Easily the most popular choice in our quest to find what made Britain entrepreneurial, reasons for Thatcher’s inclusion ranged from increased economic liberalisation, to breaking the grip of the unions, to restoring national pride. When asked for his thoughts on what forged our more entrepreneurial society, Virgin boss Sir Richard Branson had no doubts: Thatcher. “Everywhere you go in the world people are trying to replicate what she did. I was in my mid-thirties and was a bit embarrassed by the tough way she dealt with people,” he said. “A year ago I met her at a drinks party and I apologised to her.” Andrew Morris, chief executive of Earls Court and Olympia, agrees. “She tamed the unions, said that profit was good and gave us back our national pride,” he says. Peter Brown, MD of logistics firm Wincanton: “The millionaires created underthe Thatcher government came from all walks of life and served as an inspiration for everyone with ambition”

Privatisation rules okay
Remember Sid? The British Gas ad campaign brought the reality of privatisation to the great British public. When, in the eighties, the Thatcher government decided “we could all be share owners now”, a nation of capitalists was born. First came BT in 1984, then British Gas in 1986. British Airways, the utility companies, British Aerospace – everything must go! And it did. Thousands were seen on TV posting, phoning and queuing up in a frenzy of excitement to register for their slice of the action before the dreaded “cut-off” point. This proccess kick-started another feature of the new, more entrepreneurial Britain: low-cost airlines. “They enabled Brits to get out there and sell in Europe without horrendous airline costs,” says Chrisstine Brown from Calorex.

On the cover of a magazine
Britain became “cool” in the nineties. Or so we were told. Gone were images of cloth caps, striking miners and terrible dress sense. In came good films, good art, good music and, believe it or not, good food. For a while, says the very well-connected Jori White of Jori White PR, “the UK was referred to as ‘Cool Britannia’.” Vanity Fair plonked the tagline on the front of the magazine and Britain, a marketable, homogeneous entity, was unleashed on the world. Okay, so they probably weren’t discussing the cultural implications of the film Trainspotting in downtown Bogota, but the Americans suddenly registered Britain and we all went out and bought Union Jack boxer shorts. Erm, sort of.

A certain Mr Branson
As a dyslexic eight-year-old, Richard Branson, excelled at sports. Captain of the rugby, cricket and football teams while at Scaitcliffe Prep School, he even won the school long jump record. But in a football match against another school, on his way to scoring a second goal, Branson was scythed down. It was the end of his sporting days. After Scaitcliffe came Stowe, an 800-strong boys’ public school. The now non-sporty (and certainly non-academic) Branson escaped to the library to write erotic stories about a fictional matron. Branson, the only entrant, won a school writing competition, and his course was set. After rejecting the head’s suggestion to write articles for the school paper, Branson set about planning a paper of his own, called Student, and an entrepreneurial career was launched.

“He single-handedly turned entrepreneurialism into a celebrity status,” says Tony Goodwin of Antal International. “Whatever the actual viability of his businesses, he showed the rest of us what you can achieve with great marketing, passion and the balls to just have a go,” says Stephen Watson of CTN.

The baby boom
The baby boom of the late forties and early fifties has been felt down the decades. This age group has had a disproportionately high influence on the rest of society and the economy, says David Stokes of Kingston University. “When they were babies in the fifities, the toy industry expanded rapidly. When they were teenagers in the sixties, society took on a more teenage feel as the music and fashion industries were revolutionised for ever. In the eighties, their desire for independence and belief in individualism over collectivism, meant that many of them became self-employed or stated their own business.” Clive Foskett, MD of Highbury-SPL Publishing: “The UK’s sixties generation grew up with very little in the post-war years, but they had spirit, energy and a belief that anything was possible.” Previous entrepreneurs had come from a background of inherited wealth. “Forty years on, there are no restrictions if you want to put ideas into reality, no social barriers, no educational barriers, no privileged class.”

£95k for a garage
When a garage in London sold for £95,000 a few years ago, the media hit the roof. But for the entrepreneurial, property prices have been a godsend. As well as giving entrepreneurs the equity against which to borrow, “remortaging,” says Josh Cooper, founder of Proteus PR, “is one of the cheapest forms of business funding available today.”

Interim capital markets
The financial crises of the mid-seventies left many thinking that the financial system needed a more liberal system (with a less demanding track record) for new issues to raise money on the public markets. The Stock Exchange’s solution was the Unlisted Securities Market (USM), which opened in November 1981. “Overnight ordinary businessman could become a millionaire and appear on the pages of the tabloids,” says Clive Sanford of boutique accountancy firm Magus Partners. The USM meant that owners of small companies could realise their investments and, crucially, raise capital, without having to satisfy the more stringent requirements of the main market. By September 1986, 508 companies had floated on the USM, raising £1bn. Of these, 71 had moved on to the main market. (A listing on the USM cost between £70,000 and £120,000, compared to £230,000 to £300,000 for a full listing.)

USM was replaced by the Alternative Investment Market (AIM) on June 19, 1995. Since then, more than 850 companies have gone public on USM’s successor. Collectively, these companies have raised more than $10bn while on AIM. Andy Lee, financial director of Cyan Technology, says that AIM has taken the capital markets to a new level. “Businesses now don’t even need profit – in some cases, barely revenues.”

Yet for all the capital released – and all the hype and success stories – Lee says the internet boom has exposed the poor quality of the capital markets and the venture capitalists.

“The idea of throwing money at anything, at business plans that any fool could see were nonsense, has turned the raising of capital into a lottery,” he thunders. “What it needs like a hole in the head is another raft of young analysts with no experience of business.”

A little light vacuuming
In 1978 James Dyson, his wife and young family moved to Bathford, just outside Bath. They moved into a big Georgian, sandstone building close to his Ballbarrow factory. But Dyson got his maths wrong. He had to borrow £12,000 more than he planned; and he’d chosen a building that needed re-plumbing and rewiring. He couldn’t afford to get the work done, so he embarked on it himself. And he helped out with the chores, too. His old, reconditioned Hoover Junior (“this poxy machine”) seemed just to push the dirt around. So he got a new, cylinder cleaner. But “after a while it, too, lost interest in sucking.” Frustrated, Dyson put his hand over the end of the hose to feel the lack of “suck.” The young inventor’s brain started spinning.

Dyson’s name maybe hasn’t quite entered the language in the same way as Hoover’s (a Dyson dream). But with more than £2bn-worth of worldwide sales and 5,000-odd prototypes later, Dyson’s success, both in commercial and technical terms, has been phenomenal. Committed to encouraging new design innovation and talent, Dyson’s entrepreneurial legacy will continue long into the future. As John Strickland, CEO of Interesource, says: “Dyson has proved that you can re-invent the wheel (or at least the vacuum cleaner).”

Three recessions
“The great spur to getting me started on my entrepreneurial career was redundancy – and lots of it!” says Henry Gewanter, managing director of Positive Profile. “Every five years, almost regularly as clockwork, I’ve been made redundant. When it happened for the third time in ten years, I finally said to myself, ‘what’s the point of killing myself to make my employers rich, when they just keep on firing me’? Now, I may go bust, but I’ll never get fired again!” Economic downturns have either directly or indirectly been the driving force behind thousands of start-ups in the UK.

Gareth Edwards, from The Leadership Trust Foundation, says: “The industrial unrest of the seventies and eighties, and the consequent number of redundancies, provided an environment – and in some cases some cash – to try out new entrepreneurial ideas.” Linda Cooper, a director of consulting services at odysseyzone.com, says that recessions have had a quiet but important impact on the observant young. Suddenly, jobs for life were gone.

“The recession of the early nineties had its major impact on the managerial middle classes,” she says. “With all the ‘slack’ stripped out of the engine-room of companies, hundreds of thousands of white-collar workers and their managers were the next for the chop. Being safe was about having portable knowledge – real knowledge that could be transferred to other companies.”

The birth of 3i
The economic depression that followed World War I prompted, in 1931, the establishment of the Macmillan Committee. It looked into why small and medium-sized firms in the UK found it so hard to get access to capital (ring any bells?). Although the committee (members included John Maynard Keynes) spent most of its time on issues such as the gold standard, it did identify a “funding gap.” As a result of its findings, the Industrial and Commercial Finance Corporation (ICFC) was set up – it later became 3i, today the UK’s largest private equity investor. Early versions of “due diligence” took unusual – but not unfamiliar – forms. One ICFC executive banned investments in companies where the directors wore suede shoes, had monogrammed shirts, or drove flashy cars. Chris Smart, a managing partner at IDG Ventures Europe, says 3i “has underpinned the growth of UK venture capital and fed billions into entrepreneurial activity.” We agree. But, says one unnamed venture capitalist, beards may be the new suede shoes...

Remember the internet?
It’s trendy to deride it now, but the rise of the internet – and the spirit of can-do that came with it – certainly changed attitudes to entrepreneurialism in the UK. “The success of the Silicon Valley-driven internet boom from 1994 to 2000 did more than most people understand to drive the launch of venture capital, entrepreneurship and start-up culture in London from 1998 to 2000,” says Julie Meyer, CEO and founder of Ariadne Capital and the co-creator of the truly phenomenal First Tuesday networking group.

“The internet gave opportunities for budding entrepreneurs to identify new business models, opened up new markets on a global scale and provided high-profile role models from the US who had created new businesses with, what appeared to have, huge value in a short period of time,” says David Wilkinson, head of entrepreneurial services at Ernst & Young. “People have to take you solely on your merits, not on the size of your office, or how many secretaries you have,” says Eduardo Loigorri, MD at Exchequer Software. And small UK firms now can truly compete on a global basis. “With limited skills and almost no cash you can have a web site advertising your services. With a bit more intelligence and very little cash you can get your web site to the top of the search engines,” says Linda Cooper, a director at odysseyzone.com.

Role models for a new generation
Finally, let’s hear it for the role models. Many individuals were cited as being leading lights in (or for) entrepreneurial Britain and their role model status is a category of its own. Says Peter Hiscocks, director of Cambridge University’s Entrepreneurship Centre: “We are starting to celebrate our entrepreneurs and recognise the value they bring instead of looking down on them as Arthur Daleys or Delboy Trotters.”

Bill Gates
First up, Bill Gates. With his great-grandfather a state legislator and mayor, and his grandfather a vice-president of a national bank, the child born in Seattle on October 28, 1955 was perhaps destined for great things. But Bill Gates certainly inherited the ambition, intelligence, and competitive spirit that had helped his ancestors rise to the top. He was bright. He was good at computers. He spawned a generation of entrepreneurs. Says John Strickland, CEO of Interesource: “Bill Gates made us think that if American geeks can make money British geeks could do it too!”

Alan Sugar
As a teenager in London’s Hackney, Alan Sugar started out as a street trader selling car aerials. Today even the chancellor calls the multi-millionaire Amstrad boss “a valuable asset.” In addition to Amstrad (the computer firm he set up in 1968), he runs the Alan Sugar Foundation, has the ear of government, tours the country encouraging enterprise in the country’s youth and was a driving force in setting up a scheme to support young eastern European entrepreneurs. It is less widely known that he is also one of Britain’s biggest benefactors.

“Sugar has shown a huge degree of resilience in his businesses,” says Martin York, sales director of CONF-it. “Amstrad has been reinvented on about six occasions. Going from selling electrical goods to becoming a low-priced hi-fi manufacturer, through to low-price word-processors, computers, satellite systems and now a very innovative e-mail system. And along the way he took out time to chair Premier League football club Tottenham Hotspur.” Okay, we’ll forget about the last one.

Clive Sinclair
Infamous for his forward-thinking, battery-powered, three-wheeler car, Clive Sinclair first burst into the British consciousness with his ground-breaking ZX80 and ZX81 computers. They were cheap and small but you could play a range of basic computer games on them and, more important, they were a big hit. Sinclair proved that you could mass-market innovation – so long as you got the product right. He was perhaps the first to master miniaturisation. In 1962 he marketed the world’s first pocket calculator; by 1976 he’d come up with the world’s first digital wristwatch; and in 1977 came the first pocket TV. Perhaps forever to be associated with an invention that bombed, Sinclair’s imaginative solution to most major cities’ traffic problems may well be proved over the long term...

Jack Cohen and other retailers
Born in Whitechapel, the son of a Polish tailor, Jack Cohen’s entrepreneurial talents were clear from an early age. Shortly after World War I, using his army gratuity, he set up a market stall in Well Street Market, Hackney, selling re-labelled tins of rejected and salvaged produce at low prices. His first day brought a £1 profit. When he needed a name for a bulk consignment of unmarked tea he combined the tea supplier’s initials “tes” with his surname “co”. And Tesco was born.

Others include Archie Norman – “Norman and his team’s turnaround at Asda were a triumph in the face of a massive debt burden. It was achieved by really motivating staff with a vision and a meaningful share scheme,” says entrepreneur Bill Jones of Bjconsults. “Then there’s Anita Roddick,” Jones continues. “She proved that an idea constantly refreshed and delivered with commitment can work.”

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