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The Entrepreneurial Class: Surviving a Crisis

Ed Cottrell

03-Jul-2012

Every six months, Investec speaks to the country’s leading entrepreneurs to gauge their confidence in the economy. Results for the latest Investec Entrepreneur Confidence Index reveal that while business leaders expect the general economic climate to deteriorate, they are optimistic about the future of their companies.

Despite the general gloom, the last few months have been busy for the Growth & Acquisition Finance team in London. We have been working with entrepreneurs across a range of businesses - from dry docks in Gibraltar to IT services in Surrey. Business owners have been knocking on our door, eager to find ways in which they can access capital for their business. Our meeting schedule is filled back-to-back with entrepreneurs seeking to raise finance to grow their companies. The eagerness and enthusiasm makes us wonder - what is different about this particular group of people, a breed commonly referred to as the Entrepreneurial Class?

Recession or not, the entrepreneur plays a different game when times get tough. They emerge with battle scars, but tougher for pulling their businesses through. Sometimes innovating, sometimes acquiring, sometimes downsizing and re-structuring, the entrepreneur has the flexibility to navigate a nimble enterprise through the worst of crises. While governments invest billions into supporting the economy, it is the entrepreneur that is the lifeblood of the economy and at the forefront of economic growth.

What are they thinking?

The British Chamber of Commerce recently declared an improvement in the economy. It has said that Britain may avoid a recession and no more quantitative easing will be required. The recovery is expected to be weak and perhaps the end of the crisis is near. But what are the wealth creators really thinking? Do they have the same level of faith in the economy?

Research conducted by Investec has highlighted a number of concerns for the entrepreneur. Of the 31 entrepreneurs interviewed, most seem to maintain a healthy, realistic view on the economy. 38% believe that the overall economic climate will stay unchanged while 49% believe that conditions will deteriorate. This is the lowest of optimism level recorded since the Index was launched in December 2009. The entrepreneurs remain unperturbed about the government’s spending cuts or inflation but worry about the impact of the Eurozone crisis. 45% see this as the highest risk facing their business.

However despite their concerns about the economy, this group of successful entrepreneurs are hopeful about their own business. Nearly 80% expect revenues to increase, an overwhelming 86% are hoping to record growth in profits. Cash flows are expected to improve as a result of better performance.

Half of those interviewed expect to make at least one small acquisition while 84% want to focus on organic growth. This is supported by the fact that 56% of the entrepreneurs expect to invest heavily in research and development in the coming year. Over half the group have product launches planned, while 29% said it was quite likely that their business would launch new products and revenue streams.

Optimism spreads throughout the organisation. Entrepreneurs are expecting to maintain employee benefits. 17% are looking to invest in improving staff packages significantly and around 63% expect to increase headcount. A mere 13% are looking to make cost cuts by reducing staff levels.

Supporting the Entrepreneurial Class

If entrepreneurs are the lifeblood of growth, then supporting them should be a priority for any struggling economy. There isn’t much anyone can do to reduce the risks associated with the Eurozone crisis but access to capital is something that can be solved.

The survey reveals that entrepreneurs have little faith in government initiatives, so support has to come from a different class of people – investors, venture capitalists, angels and other individuals who can fuel growth in enterprise. Non-traditional forms of capital should be encouraged and incentives should be offered to the real heroes who invest risk capital in growing businesses.

With the government soon to launch the Seed Enterprise Investment Scheme, steps are being taken in the right direction. But not enough to resuscitate the economy back to its old glory days. More needs to be done if the country is to regain its lost health and vitality – supporting the Entrepreneurial Class seems like an essential step towards recovery.

Ed Cottrell
Head of Growth & Acquisition Finance

Ed joined Investec in 2002, originally in the Investment Bank, before helping establish the Growth & Acquisition Finance team in 2003. Prior to this he worked for KPMG where he qualified as a Chartered Accountant and latterly within the Investment Banking division of Merrill Lynch in London. He holds a Bachelor of Business Science (Hons) in Finance from the University of Cape Town.

The opinions and views expressed are for information purposes only and are subject to change without notice. They should not be viewed as independent research, recommendations or investment advice of any nature.