Alan Sugar, a UK entrepreneur with more than his fair share of grey hair, stoked controversy by stating that 85% of UK businesses that failed to receive bank finance had nothing to complain about.
Amid the controversy of whether he actually said this or not, we can still ask ourselves whether he has a point.
Essentially, he is saying that the reason that businesses don’t get finance is because they aren’t good enough.
His description is that many entrepreneurs are living in a Disneyworld.
Okay, let’s start with what did he actually say. He said
“The problem is that some younger people who have lived through the last 10 years or so of business and prior to that 10 years they may have just come from education, they lived through that period of the last 10 years where they think the irresponsible manner in which the banks dealt is the norm.
“Let me tell you, you lived in the Disneyworld, you have lived in the unrealistic Disneyworld in the way banks dished out money.”
“The moaners are bust. They are bust and they don’t need the bank – they need an insolvency practitioner.”
Okay, actually, he has a point.
Perhaps it is not so much our education or some people’s youth - but perhaps it is because our businesses became more and more unhinged (or leveraged) and the value they added became less and less clear.
Not so much that we became lazy during this period of excess – I certainly worked harder than ever – but we became relaxed. Relaxed about profits believing that so long as revenue was growing, we could always sell the business. Relaxed about staff performance, knowing that replacing mediocre staff was hard and may not deliver any improvements.
It is certainly true that during this time of excess we’ve seen huge salary and employee wage rises. Which is understandable, because you now need to earn a small fortune to buy a small flat. Again, perhaps we became to relaxed about profit and too willing to share it with those who didn’t put up the risk in the first place.
We’ve also enjoyed higher taxation during the boom years which has swamped the public sector in money and built weak competitors that are poorly attuned to drought conditions.
Essentially, we have lived, as entrepreneurs, too well for too long and the arguments for the war on talent etc has encouraged us to turn a blind eye to poor or average staff performance and that coupled with the increasingly restrictive employment legislation and ‘fear of losing good people’ has perhaps been the root cause.
Still, Alan Sugar is right when he says most businesses are not worth investing in. Especially those businesses built in the boom years and used to the easy sales that came with that time.
We now face a period of hard work grinding out results and delivering clear value. And that requires a major shift in the way we run our companies. It has been argued that the success of new start up businesses – or restarting enterprises - is down to the quality of implementation and not the idea. This is a major shift in thinking.
The good news is that in this environment we can forget about our competitors and their threats to steal our carefully nurtured talent – we can now just get on with paying a fair rate for a great days work and focus entirely on the quality of implementation.
As entrepreneurs we have the opportunity to turn our businesses around or begin again, but this will be achieved mainly by going back to the simple things, making a profit always and being intolerant of mediocre performance from highly paid staff and becoming crystal clear about how we add value to our customers.
New businesses need to be value driven, they need to be grown without debt or with small business angel investments in order to prove the business model. And all business investment needs to be justified in clear revenue terms, questioned on a regular basis and pulled if it fails to achieve its objectives.
Growing a business without debt is hard work, but it is the most certain way to achieve success as it allows you to adapt your business model as you learn about how the market responds to your offering.