Fear Of Failure

A recent survey by Orange reported no shortage of bright ideas, but cited the lack of confidence and a fear of failure as the main reasons for sitting on their hands. Orange said that budding entrepreneurs needed more encouragement to succeed. They called on help to be given to develop talented would-be entrepreneurs and to cultivate an appetite for rational risk in the education system.

A particular focus of Connect is to help innovators hone their ideas and share best practise through our Investor Readiness workshops and mentoring schemes. The role of Proof-of-Concept funding cannot be underestimated in helping these fledgling ideas gain momentum and we continue to lobby for improved business support in this area.

Investor Readiness

The Sunday Times featured an interesting article on Investor Readiness that echoed many of the experiences that we find with people who go through our IRP programme. These are given by experienced professionals and business people who give their time freely to help young technology entrepreneurs understand their proposition from the perspective of an investor. The lessons learnt are invaluable as is the ability to share experiences with other people following a similar journey and seasoned professionals that have heard it all before. Our next IRP workshops are being held in Sheffield on the 7th and 14th November. If you fancy coming along, please contact us.

The Value Of Networks

Metcalfe's law states that the value of a network is proportional to the square of the number of those involved. The number of unique connections in a network of a number of nodes (n) can be expressed mathematically as n*(n-1)/2. Perversely, the basic tenet of modern organisational theory is how to manage this complexity and structure companies so that as they grow this proliferation of connections is managed effectively.

However, when it comes to the virtual world the more the merrier is usually the case and only when an application focused on participation and involvement reaches a certain critical mass do those involved start to interact effectively. This relates to the fact that although the number of potential connections may be large, the number of relevant connections may be much smaller. Obviously if we are talking about directed connections i.e. you know the number or address of the person you want to 'call' then all is fine and dandy, but much of the success of tools like LinkedIn and FaceBook relates to the ability of the software to facilitate members of the network finding like minded people to interact with and build up connections based on declarative information embedded in profiles. The success of using structured information to facilitate or prompt interactions is a major development over traditional web-based directory listings.

If you also think about the comparison to physical networking - what is the chance of bumping into someone at an event are inversely linked to the paucity of the network, so the focus is to maximise the focus. With online networks the goal is to maximise the number of participants and ensure relevant people find each other using the functionality of the site. With our new resource portal http://www.mydealmaker.co.uk/ we are trying to balance the focus on signing up more users with efforts to improve the functionality of the site so that users find connections of interest as the beta progresses.


By the way, we are looking for participants for focus groups to be held over lunch from 12.30-2.30pm on Wednesday 31st October and Monday 5th November at our offices in Leeds. The aim of this is to help inform our strategy for provision of online services with specific focus on our new opportunities portal http://www.mydealmaker.co.uk/. We realize this is short notice, but if you can spare the time we really would appreciate your input. We promise no homework is involved! If you would like to have your say in a physical way, please email us.

Focus, Focus, Focus

In real estate investment the mantra is location, location, location but for a startup company it should be focus, focus, focus. Far too many companies bite off more than they can chew even before they have cut their milk teeth. While big markets numbers may turn some people on, it's always better to be a master of one.

This is what Ev Williams (founder of Blogger & Twitter) has to say about this:
“Focus on the smallest possible problem you could solve that would potentially be useful. Most companies start out trying to do too many things. Focusing on a small niche has so many advantages: With much less work, you can be the best at what you do. Small things, like a microscopic world, almost always turn out to be bigger than you think when you zoom in. You can much more easily position and market yourself when more focused. And when it comes to partnering, or being acquired, there’s less chance for conflict. This is all so logical and, yet, there’s a resistance to focusing. I think it comes from a fear of being trivial. Just remember: If you get to be #1 in your category, but your category is too small, then you can broaden your scope—and you can do so with leverage.”

Most businesses need to cross the chasm from early adopters to the mainstream and that's a lot easier when you have a whole product however small, then you can start to add +1 extensions to grow your market. The downside of trying to calve off too large a slice of market real estate too early is that you never have enough substance in any specific area to transition your product or service to the mainstream which is where you will make your money - however big or small your target market is.

Jam Tomorrow

Directorbank recently announced it is taking equity stakes in young companies in lieu of their fee for placing staff. A number of Connect Yorkshire partners also work with companies on a contingency basis and look to take a stake in return for the effort they put in. Is this a good idea? It can be a good way of building trust and aligning the interests of the advisor with that of the company. I am surprised more service providers aren't prepared to take a punt and put their money where their mouth is. One our sponsors Winburn Glass Norfolk is well known for its innovative approach in this area.

Taxing Times

The Chancellor's decision to change the Chapital Gains Tax (CGT) rate to a flat 18% and abolish taper relief seems like a gut reaction to the fact that private equity bosses are only paying 10% on their 'carry' on successful investments. Caught in the cross fire are entrepreneurs that now are going to have to pay nearly twice as much tax on exit. The fact that the Enterprise Investment Scheme (EIS) allows up to £400K of any gain to be rolled over into a new venture softens the blow, but these changes that come in in April 2008 give a big incentive to exit before then!

Sainsbury Boost For Connect

Lord Sainsbury’s review of the UK science and innovation system. includes a glowing endorsement of the CONNECT model:

Recommendation 9.5
Drawing on the success of the CONNECT scheme in San Diego, RDAs [Regional Development Agencies] should support services for high-technology entrepreneurs around our world-class universities similar to the CONNECT service within the BSSP [Business Support Simplification Program] framework.

Connect assists technology-based companies and entrepreneurs in refining their business and financial strategies through a group mentoring process. It assists with the development of business plans and business presentations, and provides a forum in which the entrepreneurs can present their refined business model before a group of business, marketing and management experts. The scheme’s success steams from its holistic approach, the range of expertise it provides and the fact that “none of us are as smart as all of us”.

Distance No Object?

VCs often tell me that it’s the quality of the company that drives the deal, not the geography. So is where you start a business really that important? According to Library House London is a magnet for new venture capital backed businesses despite the expensive rent and salaries. They point to the number of successful exits as a ratio to the number of deals done as an outcome measure. Apparently, in London the ratio is 2:3 whereas in the North the ratio is no more than one in four. Does this in any way relate to the geographic remoteness from the major financial market? One blip in this statistical argument appears to be the Emerald Isle where, albeit from a lower base, the ratio of exits to deals is one in two. Maybe it’s the Guinness that aids the deal making!

Is one way of breaking down these geographic barriers to utilise technology more? Connect has recently released a online portal, http://www.mydealmaker.co.uk/, designed to allow companies wherever they are to pitch their investment proposition whenever they want. The idea is that even if a VC can't find the time or the rail fare to come to our Investment Forum, they can at least take a looksee at the cream of the technology crop from across the region. Equally, entrepreneurs no longer have to wait for the next Forum to come around in the hope that they get a presentation slot. We look forward to our first online investment success and to improving our ratios!

Online Research Versus Legwork

There seems to be an increasing trend to research opportunities online before expending too much physical effort evaluating the options. Who last went looking around a new neighbourhood looking for houses, rather than first having a trawl of Rightmove? Tesco have just launch a new comparision website to compete with the likes of MoneySupermarket. So there must be money in them there hills. And with MyDealMaker debuting, even venture capitalists and angel investors can get in on the act and search for entreprenurs with big ideas looking for funding that meet their search criteria.

Where will it all end? In the lead, not supprisingly, is Formula One. Car design is apparently moving from using computer simulation to validate an hypothesis to ab initio models where nothing physical is made until the computer says yes. Drug design has similarly embraced the idea that sampling chemical space is best done virtually before that expensive step of synthesising anything is taken and anyone gets their hands dirty.

Who, thirty years ago, would have believed that computers would be used for screening potential dates/mates before 'pressing the flesh'! And if you had said we would all be texting like mad, rather than videoconferencing by now you would have been laughed out of the room. As the BT futureologist at a recent YSTN event commented, maybe we should be employing more phycologists to help design new products, rather than leaving this entirely to the technologists!