High Net World HNW Magazine Dec/Jan 2012 Issue by High Net World (HNW) Magazine

IT’S WHAT YOU DON’T KNOW... The Business of Acceleration The Y Combinator Equation

High Net World Magazine OCT/NOV 2011 IN THIS ISSUE

Also inside:

The Entrepreneurial Spark: A Business Start-Up Renaissance

THE “GOOGLE X” SECRET LABORATORY SHOWCASE INVESTMENT OPPORTUNITIES THE WEDO ANNUAL ENTREPRENEURIAL AWARDS PRACTICAL BUSINESS: THE LEGAL GOLD RUSH AND TAX AVOIDANCE VS TAX EVASION RAISING MONEY: A TALE OF TWO CITIES

STEEL’S VIEW

GECKO’S DIGITAL LENS

RUTHLESS

GOLD? LET IT BE Page 7

MEASURING SOCIAL MEDIA Page 9

BoE’s £75bn QE IS BS Page 43

Do you know a group of people who make things happen?

WeDO ... We Develop Opportunities WHAT DO

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• WeDO ... help businesses grow • WeDO ... connect our members

• WeDO ... innovate businesses, products and services • WeDO ... provide support to entrepreneurs • WeDO ... gain access to funding sources • WeDO ... build long-term & trusted relationships AND HOW DO

WeDO THAT?

• WeDO that ... by connecting 'like minds' • WeDO that ... by sharing ideas • WeDO that ... by sharing our experiences • WeDO that ... by facilitating access to our 'hands-on' knowledge • WeDO that … by being pro-active with our introductions

www.wedoscotland.co hello@wedoscotland.co 08708-759793

HNW MAGAZINE OCT/NOV 2011

In this issue

Welcome

COVER INTERVIEW

The Business of Acceleration

It’s far too easy now to court controversy, to drive market sentiment (often the wrong way) on the back of word-smithery, to make individual perception into burgeoning global reality, by mere Tweetery.

What’s the truth about accelerators, around which an entire business ecosystem has been born again in Silicon Valley.

FEATURES

HNW’s Investment Showcase Opportunities for Angels We look at some of the most recommended new company investment opportunities seeking funding and the right Angel.

The Entrepreneurial Spark: 18 A Business Start-Up Renaissance Entrepreneur Jim Duffy has launched Scotland’s first business accelerator programme, Entrepreneurial Spark.

The WeDO Annual Awards HNW Magazine sponsors the High Growth Company of the Year at the prestigious annual WeDO entrepreneurial awards event.

A Look Inside “Google X”

BoE’s £75bn in QE means more BS Was the Bank of England’s (BoE) purchase of 30% of the government bond market a good idea or more bad quantitative easing (QE).

Steel’s View Gecko’s Digital Lens Ecosse Economy Mike Williams Steve Paterson Ray McLennan

7 9 23 32 36 39

REGULARS

The Secret Innovation Laboratory Like something out of a James Cameron Sci-Fi movie HNW reveals what had until now been only a hotly contested rumoured.

Ruthless:

The WeDo Annual Awards

COLUMNS

There’s too much red ink out there; negative stories written to drive sales of publications that specialise in writing, well, red ink.

Showcase Investment Ambition Employability Franchising International The Network Practical Business Ruthless Diatribe

2 11 13 16 25 35 38 43 44

Published by Bronx Media Limited Registered Office 4/2b Carpet Lane, Edinburgh EH6 6SP Editor Ed Emerson, ed@hnwscotland.co.uk Contributors Alan Steel, Gold? Let It Be; Mike Octigan, Measuring Social Media; Mike Williams, The View from Manhattan; Steve Paterson, A Tale of Two Cities; Ray McLennan, The Legal Market Gold Rush; Marie Marin, Third Sector Self-Reliance Client Service John Kennedy Operations & Distribution Cath Emerson, cath@hnwscotland.co.uk Graphic Design Full Circle Graphics, www.fullcirclegraphics.co.uk The views expressed in HNW Magazine are those of invited contributors and not necessarily those of Bronx Media Limited. Bronx Media Limited does not endorse any goods or services advertised or any claims or representations made in any advertisement in HNW Magazine, and accepts no liability to any person for loss or damage suffered as a consequence of their responding to, or reliance on, any claim or representation made in advertisements appearing in HNW Magazine. By responding or placing reliance, readers accept that they do so at their own risk. ©2011 Bronx Media Limited. Reproduction in whole or part is forbidden without the written consent of the publisher.

So when in the course of a recent business growth round table discussion with WeDO and Shirlaws, the million-dollar question was posed: are we really in a recession? By way of response I asked the small gathering on the day to turn off the media noise, as much as possible, for one week and have a look into their own businesses instead of the flat screen. A few actually did. Mike Wynn of Construction & Property Recruitment said: “Our figures suggest an improvement. There’s work out there. Is there a recession......no.” Mark Boyde of NAC: “…by negative growth rate of GDP…it appears that the recession is over. If we ask, ‘are we in depression’ then the answer has to be yes.” Gaynor Turner of MacIntyres: “10 days in the Far East…only CNN, Fox News, BBC World and Bloomberg… the constant loop (acts) like hypnotic suggestion.” And in that, a lesson; that we not become victims to suggestion without justification. In the words of Scotland’s investment Sage of Linlithgow, Alan Steel - Nullius In Verba: Take no one’s word for it. Now read this issue and form your own conclusions.

Emerson HNW Magazine Editor

SHOWCASE

HNW MAGAZINE OCT/NOV 2011

Holoxica What it is: Started in 2008 as an Edinburgh-based high tech start up focusing on naturally viewable (glasses-free) dynamic 3D displays. What it does: Holoxica specialises in two lines of business; 3D holograms and holographic display systems. The core business is pioneering 3D holographic display systems that suspend dynamic images (animations, advertisements, short 3D video sequences) in mid-air to enable naturalistic viewing without the need for eyewear, headsets or optical tricks. Where can I see it: http://www.holoxica.com Who do I speak to: Javid Khan who founded the company to commercialise the results of his doctorate in Photonics Engineering on Holographic 3D displays at Heriot Watt University. Investment sought: Seeking to raise £250k

Kibosh What it is: Started in 2009 in the Scottish Borders to create an emergency pipe repair device for the trade sector with registered trade marks and design protection. What it does: Kibosh Emergency pipe repair has created an International Patent Pending device with Registered Trade Marks and Design Protection. There is a proposed November launch after BSI testing. Where can I see it: http://www.kiboshpiperepair.com or http://bit.ly/nMg4Xo Who do I speak to: Ross Dickinson is the founder and managing director who spent over three years perfecting the device to ensure reliability, ease of use and visual appeal. Investment sought: Undisclosed

Blazing Griffin What it is: Started in 2009 as an Edinburghbased virtual games development studio with first game Distant Star (now available) and the company’s next title, The Chronicles of Thear (a space combat game) currently in preproduction. What it does: Blazing Griffin specialises in unique combination and control methods, including voice recognition and recognise gestures, to create original and exciting new intellectual property titles for a global market. The primary development platforms are PC and Xbox Live Arcade and PlayStation Network with distribution being achieved digitally. Where can I see it: http://blazinggriffin.com Who do I speak to: Peter van der Watt, former CAD designer at Volkswagen Racing and part of the winning team as Artist/Designer for the 2008 & 2009 Microsoft Imagine Cup SA. Investment sought: Seeking to raise £250k

ISLA

Innovations in Speech, Language and Audiology What it is: Started in 2010 with an Edinburgh trading address as the first Institute for Speech, Language and Audiology in the UK. What it does: ISLA is creating a multimedia-based training tool on specific speech/ language/hearing disorders, alongside a video database of cases and commercial activities around private clinical services. The intention is to develop ‘The e-Textbook’ on stuttering for a worldwide market. Where can I see it: www.islaclinics.com Who do I speak to: Dr Robin Lickley is the founder and principle who is developing the training tool. Investment sought: Seeking to raise £800,000 to launch and successfully establish its activities.

SHOWCASE

HNW MAGAZINE OCT/NOV 2011

UWI Tech What it is: Started in Edinburgh to develop the UWI label which supplements the use by date on jars of food with “use within” indicators following opening. What it does: UWI has developed a “proof of concept” smart label that knows when you opened a jar for the first time and tells you when you’ve reached the “use within” period, indicating by colour when the contents are no longer safe for use. The company recently won the Barclays Take One Small Step competition. Where can I see it: www.uwitechnology.com Who do I speak to: Pete Higgins is UWI’s founder and CEO, and previous MD of CGI Media Limited

Jadeworld/ Whoozaround What it is: Started in 2010 as a London-based geo-location application for web, mobile and TV. It exploits convergent media to transform passive viewers into active engaged customers. What it does: Whoozaround operates as a real time location service that allows viewers to find local venues with tempting offers, targeting 18-34 year olds in a joint marketing and viewer engagement initiative with Channel 5 and reality TV series Big Brother. Where can I see it: www.whoozaround.com Who do I speak to: Charles Liasides the Chairman and founder and a serial entrepreneur and investor in the tech, digital and retail sectors. Investment sought: Seeking to raise £800k

offering visual imaging/computer simulation services to the property market.

Investment sought: Undisclosed

Seaweed & Eat It

Dreampact

What it is: Started in 2007 as a book publication of the same name, Seaweed & Eat It acts as an Edinburgh-based producer, processor and wholesaler dedicated to sourcing high-quality seaweed and repackaging it for sale.

What it is: Started in 2002 as an Edinburgh-based design and consultancy service to the industrial, military/aerospace and telecommunications sectors spanning RF design, high-speed digital design, VHDL and embedded/application software design.

What it does: Building on earlier media work (book) and initial business activities (Foraging Tours) Seaweed & Eat It is developing a range of seaweed products to sell as cookery ingredients to speciality food retailers and gourmet restaurants, branded as The Forage. Where can I see it: www.foragerangers.com Who do I speak to: Fiona Houston, founding director, Oxford Graduate and former international news correspondent. Investment sought: Seeking to raise £150k

What it does: Dreampact has developed two versions of stabilized 360 degree cameras which use neither gimbals nor motors for anti-jitter. See http://www.gizmag. com/the-i-ball-short-range-throwingcamera/10399/ and participated in the recent DSEi (Defence & Security Equipment International). Where can I see it: www.dreampact.com Who do I speak to: Paul Thompson is a founder and director who, with management team members Pete Cronshaw and Stuart Pooley, have technical experience spanning Agilent and Hewlett Packard. Investment sought: Undisclosed

Can you help a social entrepreneur in your community to make a difference? Do you have an enterprising idea that will beneﬁt your community?

Firstport (www.firstport.org.uk) supports new and emerging social entrepreneurs across Scotland. This new ESF project, the Social Enterprise Skills Exchange (www.sese.org.uk) aims to match business skills and experience to social enterprise initiatives. If you have skills and expertise to offer or have an enterprising idea that will benefit the community, visit our website and get involved! To find out more contact info@firstport.org.uk or call us on 0131 220 0511 Social Enterprise Skills Exchange is owned and operated by Edinburgh Business Development, Firstport and made possible through funding from the European Social Fund.

SHOWCASE INVESTMENT

HNW MAGAZINE OCT/NOV 2011

Charles Liasides Finding Whoozaround I first encountered the man behind Jadeworld Ltd and its convergent application Whoozaround, an ‘unashamedly social’ geo-location app that has partnered with Channel 5 and its new jewel-in-thecrown programme Big Brother, on the pages of American Samizdat in 2008. THEREIN a rebellious Cypriot named Liasides was espousing the findings of a London School of Economics report which he initiated, on the impact of cynicism, the aptly-named ‘Cyndex’ survey, as one of the greatest threats to democracy.

“

Charles Liasides bears the visionary’s yoke; being ahead of your time often means you have to wait for the mainstream to catch on and catch up. Protocol TV service a few years back,” Says Liasides. “Convergence between TV and my areas of web and mobile is happening fast – people are changing the way they consume social media. Thus the reason for Jadeworld, a project originally conceived for the Chinese market, but alas the recession happened – but as entrepreneurs we persevered and ended up with Whoozaround.” As for uniqueness? “Matchphrase, by making the programme’s content a part of the game and linking also into a reason to watch the adverts, is a model that could help salvage at least part of a struggling TV advertising market driven in no small part by options like Sky Plus as people skip the ads. The quick take on Liasides; born in London to Greek parents, his father was a

”

cabinet maker-turned-dress maker who, with his mother worked in the Charlotte Street garment district since the 50’s. And thus retail was his first business at 16, reselling 28” flared bell-bottom ‘loon pants’ at school at a nice profit. “The business was a great way to both engage in the rebellious political and social scene of the late 60’s and early 70’s, and to meet girls! It was at my school that the ‘Oz Magazine Three’; Jim Anderson, Richard Neville and Felix Dennis, were charged by the crown of “Conspiracy to deprave and corrupt the Morals of the Young of the Realm”. Driven by an ingrained entrepreneurial spirit he describes as the “the insecurity of immigrants”, Charles’ post-collegiate journey occurs as a unique view of the burgeoning IT sector from the 70’s onward like few can boast.

Proof positive that there are no accidents in life, three years on and I’m seated opposite the now Jadeworld Ltd Chairman in London’s renovated St Pancras station, with visions of cynicism dancing in my head. His ‘Matchphrase’ initiative is now the official Big Brother series play-along game, sitting snugly as the centrepiece promotional campaign for the convergent web/mobile/TV platform that has truly earned its description as the new ‘Facebook-meets-Groupon’. Whoozaround’s social-media driven friends, food and local entertainment finder application strikes a resonant commercial tone in its ability to entice the interest of the notoriously hard to capture 18-34 year-old market. “Jadeworld was born following a project of monetising intellectual capital when I came across ITV local, an Internet

AN EAGLES’ VIEW CHARLES LIASIDES An eagles view of Charles Liasides journey includes membership of the equity gap working party at the CBI drawing up rules for venture capital trusts and EIS, strong links to the London School of Economics where he is now research fellow and the first to gazump the IT sector main players or The BUNCH (Burrows, Univac, NCR, CDC and Honeywell) in developing UNIX open systems, , creating the IT support structure for the ‘global classroom’ for tailored company MBAs and creating some of the first business websites and the very first SMS value added text services, such as share prices, traffic information and sports results. Making these available via the web was the first step in convergence that Jadeworld continues into TV now with Whoozaround.

STEEL’S VIEW

HNW MAGAZINE OCT/NOV 2011

Gold? Let it be Gold as we all know, or have been told by those in the know, is “…an ideal hedge in times of trouble”. WARS and tsunamis (be they actual or financial), currency and debt debacles, even inflation worries are typical breeding grounds for a rising Gold price. And that’s what we’ve seen over the last 10 years. “When I find myself in times of trouble mother Mary comes to me…” It’s only recently that talking heads and the dead tree press were telling us Gold was on an upward course unchecked to $2500 to $3000 an ounce. Then from $1950 or so it starts falling, heading rapidly instead to $1600. Not long after, private investors dumped stockmarket investments to buy it in a run to perceived safety. But why the collapse?

back to stocks significantly.

Market perspective

“…speaking words of wisdom.......”

“Let it be, let it be, let it be, let it be...”

According to some sources, Gold has plummeted as holders rush to cash, based on worries over the financial stability of the Eurozone.

Gold has certainly been showing signs of bubble territory.

In August we broke all sorts of records for all the wrong reasons. We saw the most volatile and unprecedented extremes in trading activity in stockmarkets since 1900. On August 8th, thanks to Standard & Poor’s downgrading of US debt and the Philly Fed Index’s 30-point drop, stockmarket traders, commentators and journalists went hysterical. That day all 500 stocks in the S&P 500 fell. That’s a record. Virtually 100% of the 1,392 stocks in the Ned Davis Research Multi Cap Index fell. Another record.

Oh, yes. You read that correctly. What utter nonsense! If the Eurozone was in such danger, Gold would be rising faster than Andy Murray’s blood pressure. You’ve probably noticed over the years that things like oil rising, and then oil falling is apparently down to good news followed by bad news. But Gold is the panic button; the safety net, meaning that if the Euro was in trouble it would go up! So what’s up? Could it be the smart money sees the demand from private investors (Gold being overbought), who always make the wrong call? Or a realisation that Global growth will continue and the smart money is moving

And it’s the smart folks who recognise indicators in the US and Asia suggest global growth is likely to continue, albeit more slowly, and that recession will be avoided; that trade and capital spending increases are signs it’s time to stock up on an undervalued asset class e.g. equities___. “Speaking words of wisdom…” I’d back that move now. Especially as we move into the season for best performance; October 2011 to Spring 2012. What to buy?

But 3 days later, all but 3 of the 500 stocks went up and over 99% of the Multi Cap stocks went up too. Later in the month buy indicators reached a record 97%. While volatility indices went haywire, towards the end of August the surge of positive buying produced the second 10-to-1 up day in only 10 days. Another record. That’s never happened before and is positive.

Investors could tuck away M&G Global Basics, M&G Global Dividend, Neptune Global Alpha or Newton Global Higher Income for a nice balanced midfield... ...if you had a fantasy fund management football team in mind. “...let it beeeee…eeeeee.”

Alan Steel, Chairman, Alan Steel Asset Management

GECKO’S DIGITAL LENS

HNW MAGAZINE OCT/NOV 2011

Measuring Social Media What’s your digital RoI? Concrete business goals are important. That sounds a bit stupid, right? media channels did that activity then correlate with increased sales – did the two tie together?

OF course goals are important. They keep your mind on the prize, provide a platform for strategy and allow you to calculate a return on your investment (RoI).

There are many traditional digital metrics like traffic counts, number of comments, Facebook/LinkedIn/Twitter/Kiltr followers and even the numbers of ‘likes’ accumulated, as I wrote about in the last issue of HNW Magazine (Likeonomics July/August 2011).

But how do we calculate RoI; that crucial endgame measure that let’s you know whether you’re creating wealth for yourself or someone else? On the face of it the formula is relatively straight forward: RoI = (X – Y) / Y

But let’s consider what those numbers created.

X = how much you got back on an investment, call it £100. Y = how much you invested to make your £100, call it £20.

If you’re measuring increased digital activity to increase sales of a specific product or service, that correlation and path-to-product is what you’re looking for.

Then we plug in some numbers: RoI = (100 – 20) / 20 = 4 So if you invest £20 and get a return of £100 your RoI is four times your initial investment. Not too shabby. But can we also reckon our digital return on investment, our expenditure and

return on social media, by the same formula? With social media it’s as much about the numbers as it is about the correlations. By example, if you increased mentions of your company across multiple social

SO LET’S CONCENTRATE ON WHAT SOCIAL MEDIA CAN ACTUALLY DELIVER. For example; a company dedicates 20 hours per month on social media at a staff cost of £25 per hour (£500 per month / £6,000 per year) with £14,000 in related IT/digital cost £20,000 in total. The campaign involves driving interest in a new financial product. Key messaging is delivered out across four social media channels on the basis of; direct product reference/ testimonial statements, and “security-in-the-face-of economicwoes” platforms. Over a year the quantitative engagement across ‘likes’, re-tweets, clicks from links to the specific coded product site was 100,000 ‘unique visitors’ delivering 1,000 product sales at an average value to the company of £150 per product sold, or £250,000. RoI = (250,000 – 20,000) / 20,000 = 11.5 So in the digital return on investment model, if you invest £20,000 and get an annual return of £250,000 your RoI is 11.5 times your initial investment. And this is just one possible measure. Simples!

The web, in its current development tsunami cycle, has programs like Google Analytics (free), PostRank (allows you to see messages and comments from other sites that contribute to your stats) and download a dashboard like Hootsuite or Tweetdeck to make this relatively easy. But what are the right digital metrics to address your businesses goals; be they increased user engagement, brand influence, sales conversion or even a combination or these…and more. So if you were counting Twitter re-tweets to benchmark company reach and awareness quantitatively and measure social success, that make sense. If you’re after a more personal relationship with clients then you need measures to assess the quality of the relationships being formed and why those clients became engaged. Social media-driven or not, every campaign should have its own unique set of objectives; to sell a new model Audi, to drive customers to a series of events, to recruit top level candidates, to entice a deeper understanding of company value and develop trust. Mike Octigan, MD, Gecko New Media

Business angels More than just money Millions of ÂŁs, Thousands of jobs, Hundreds of deals, One Network...

LINC Scotland is the national association and representative body for the business angel community in Scotland, and was a founder member of the European Business Angels Network (EBAN). Since our establishment in 1993 our members have made investments in hundreds of companies. In doing so they have provided tens

EUROPE & SCOTLAND European Regional Development Fund Investing in your Future

of millions of their own risk capital, on average levering three times more from other sources. Just as importantly they have invested their own skills and experience in the next generation of SMEs. The companies supported have created thousands of high quality jobs in the Scottish economy.

www.lincscot.co.uk

AMBITION

HNW MAGAZINE OCT/NOV 2011

Ambition: The Converge Challenge It was a natural progression for Olga Kozlova to lead Heriot-Watt’s Converge Challenge, a project set up two years ago to help discover and support Scotland’s next generation of entrepreneurs. THE girl from Kazan, renowned as Russia’s ‘3rd capital city’, is no stranger to business innovation and achievement. Winner of a Yeltsin Award (launched by Russia’s first president) that financed her studies in Edinburgh, published by her second year at Heriot-Watt, and recipient of a host of further accolades and awards, Olga wrote her PHD in cell biology – during which time she developed a screening technology based on bioluminescence – and thereafter launched her first university spin-out; LUTESS. “I fell in love with the city of Edinburgh,” Says Olga, “In the shadow of its castle the day I arrived in Waverley station. It’s beautiful and the entrepreneurial dynamism and energy here is inspiring.” Brought in to drive the Converge Challenge initiative as enterprise creation manager, Olga put together the awards forum that works with specific departments within twelve other colleges/universities in Scotland, a programme set for expansion next year.

The result? On 27th September, following applications from the leaders of over 40 leading Scots academics, Lumen Technology was awarded the £45k ‘Converge Challenge’ Prize – a part revenue, part professional services support package over the next twelve months. Lumen’s entrepreneurial MD Adam Brown, from the University of Strathclyde scooped the top prize and is now preparing to spin-out his company, Bellrock, after continually impressing the panel of judges with his idea and succinct business plan. “Through the Converge Challenge programme we help secure the right team, locate funding, get a good business plan together and set up the

winners with the right professional assistance and get them networked,” says Olga. “We work with them when these businesses are most fragile.” Heriot-Watt is no stranger to developing new businesses as the institution spinsout one or two companies each year. “All three top winners will receive mentorship over the coming year.”

Adam Brown, from the Institute for Energy and Environment in the Department of Electronic and Electrical Engineering, won by developing an intelligent condition monitoring decision support software product. The software will enable utilities companies to monitor the health and anticipated lifespan of their equipment as well as allow them to predict failures and schedule repairs in advance,

resulting in improvements to efficiency, operational output and cost. With the UK’s electricity network infrastructure having been in place for between 40-50 years, Lumen Technology has the potential to support companies and ultimately the public, in making significant financial savings which could reach into the millions. More than 40 applications were received in what was only the second year the competition has run. More people from more universities than before applied to take part and be in with a chance of winning £25,000 in cash and around £20,000 of in kind support. Olga Kozlova says: “Adam is a worthy winner who excelled at each stage of the competition and demonstrated a strong level of awareness and understanding of how he could turn his idea into a functioning enterprise.” John Anderson, chief executive of Entrepreneurial Exchange, welcomed the news. He said: “The success of Converge Challenge in attracting a high number of entries…is yet another example of the reality of what is happening every day in Scotland – there is no “lost generation” of entrepreneurs here!”

Stop it Now! Scotland is the

national programme for the prevention of child sexual abuse in Scotland.

We believe that the responsibility to stop the sexual abuse of children lies with adults. This is a challenging area of work that needs innovation and thinking ‘out of the box’. For example, in partnership with the Police, we have already pioneered a group learning programme for the families and partners of Internet Offenders in Scotland with great success. They are often the hidden victims of this behaviour and need help to keep their families together and to play a positive part in reducing future risk. This has been an entirely new approach in Scotland and one that we want to expand and use as an exemplar for the prevention of future offending. We are keen also to develop diversion programmes for young people engaged in ‘sexting’ behaviour so that they can change their current behaviour and prevent future problems for themselves and others. Stop it Now! Scotland is also leading in pioneering genuine engagement with communities

in Scotland to enable them to become directly involved in the prevention of sexual offences in the community and in the family. This includes providing people with practical steps to take to identify risk and prevent abuse. We are all about new ways of coming at a very difficult and complex problem and, through working in partnership across sectors, putting Scotland at the forefront of producing innovative and effective solutions and approaches. It’s not easy to attract financial support to make this happen in any financial climate. However we believe that the stakes are high for children and for our communities and we hope that developing new partnerships can help us to achieve our goals to make Scotland safer and to prevent the sexual abuse of children.

If you would like more information please contact us on 0131 556 3535 or scotland@stopitnow.org.uk or visit our website:

www.stopitnow.org.uk

EMPLOYABILITY

HNW MAGAZINE OCT/NOV 2011

Third Sector Self-Reliance Marie Marin saw it coming and, more importantly, did something about it.

“

It has taken us four short years from requiring 100% government support to become 100% self-sufficient.

”

Self-reliance is a lesson learned by few and suffered by many as the hindsight of the now debilitating 2007/08 global recession takes hold in the public sector. Those yearning for the ‘good old days’ of buoyant government subsidies should take note.

THE Chief Executive and founder of Employers For Childcare in Northern Ireland states it simply: “If we had not become very business focused and profit-orientated, this organisation which helps parents identify and fund childcare to return to employment, lobbies government for change and employs thirty people - would not exist today. “It has taken us four short years from requiring 100% government support to become 100% self-sufficient.” An impressive resume for any third sector, social enterprise or wellintentioned combi-business, Employers For Childcare has transformed from a traditional charity into a successful social enterprise that donates 100% profit to social good. It’s a heartening pathway as examples of third sector transformational change from reliance on government funding to 100% self-reliance are few and far between. And in the current economic climate the decline in traditional government funding routes is a mainstay media headline.

“In the US there’s a huge effort to integrate corporate social responsibility or CSR into the business profitability mix,” says Marie. “And in the UK there’s some debate around what social enterprise actually means. In England it appears to be tangled up with the Big Society, and more often linked to investment banking and those who want to lend money to charities.” “Here in Northern Ireland the Department for Enterprise Trade and Investment is responsible for what is called the social economy, but there is an equally huge contagion of confusion about what social enterprise actually means. Marie describes Northern Ireland as having a robust community voluntary sector but one that is heavily dependent upon government grants and handouts.

“While the area was classified as a ‘priority one’ for economic development (RDF) and a bevy of other support structures, when that wave receded we found ourselves fishermen who hadn’t learned to fish.” But the self-confessed technophobe learned to fish, and fish well. “The lack of self-reliance has been a cruel lesson for many organisations here. I was one of the lucky ones. In 2002 we got some money from European Social Fund. But the biggest favour they did was to say that this money was going to be for a very short period of time and that we need to find new ways of getting money. That set the mind racing.” “I’d heard about a childcare voucher scheme in England that was big business, went across and brought back the business model. We were self-sufficient within four years from 2004 to 2008 – I have the scars to prove it!” The moral of the story; Big Society organisation, whether they wear a charitable or social enterprise hat, must first operate like a business to survive a volatile economy. Over the coming issues, HNW Magazine will look into the process that transformed Employers For Childcare into a model of self-reliance and the steps other organisations can take to run a charity like a business. A charity run like a business? Perish the thought…or perhaps perish by not thinking about it.

“

I’d heard about a childcare voucher scheme in England that was big business, went across and brought back the business model. We were selfsufficient within four years from 2004 to 2008 – I have the scars to prove it!

”

INTERVIEW

HNW MAGAZINE OCT/NOV 2011

Brian Williamson of Jumpstart R&D: There’s always a solution IF, as Galileo wrote that “doubt is the father of invention” then his mother must have been a hippie-chick open to outrageous suggestions. An interesting pairing and parentage to be sure, but as Oracle co-founder Larry Ellison famously wrote: “When you innovate you’ve got to be prepared for everyone telling you you’re nuts.” Mr Ellison is not wrong. Those more inclined to scoff than lend support are readily available in any given crowd.

INNOVATION’S detractors and commentators litter history. They range from the unimaginative view of Alexander Graham Bell’s telephone expressed by US President Rutherford B Hayes who said: “An amazing invention - but I can’t see why anyone would want to use it”, to David Frost who said: “Television is an invention that permits you to be entertained in your living room by people you wouldn’t have in your home.” 14

But there has been an even worse and more prevalent innovation scenario here. It’s one of indifference; that beguiling perspective too often the refrain of Whitehall, even as the UK’s new wealth creators, particularly amongst the tech sectors, strut and fret their way to creating something new, something better, something innovative. In terms of interest, of support, who then steps into the breach? Enter Brian Williamson, MD of business transformation company Tiger Eye and director of Jumpstart, the R&D tax credits assistance business that helps companies secure access to funding for the very backbone of innovation; research and development (R&D). He’s a clever sort, an entrepreneur and investor in his own right capitalising on a gap in the market to assist companies in securing that Government funded R&D tax credit assistance made increasingly available in the 2011 Budget. And he’s managed very close to 100% success rate with Government R&D tax credit applications with the companies he works with.

“

I could see the bit that was missing, where I could add value, how to scale it up quickly and seize upon multiple routes to market.

”

By way of background, R&D tax credits were introduced in 2000 as the Government’s way of encouraging new product and service development. The idea was to help reduce some of the financial risk for technology companies to innovate and make the UK more competitive internationally. In this year’s budget it was announced that the Small Companies Research & Development (R&D) Tax Credit will rise to 200% and 225% next year, and an extra £100m worth of funding given for new research facilities at universities. And it’s good news if you’re an SME in the UK or a potential recipient of extra funding for new science facilities at select universities, which could lead to more successful spin-outs. Though it remains no secret that larger corporate businesses have argued for an R&D credit system that directly reduces tax liability – an above-the-line system - however making large corporate and SME programmes consistent for the purposes of tax benefits would be, well, like trying to untie Gideon’s Knot; unbelievably complex. The tax system is built and it’s not going to be un-built any time soon. We’re sat in his first floor Melville Street-

If an explorer has a map is he really an explorer?

”

INTERVIEW

HNW MAGAZINE OCT/NOV 2011

“

I suppose once we knew it would work, it became a race; how can we match the potential for the business with actuality. I mean, if you know a business can double in size every six months, heck every three months, how can you keep up with the business growth, infrastructure, safeguard against business getting dropped, and keeping clients happy? based office in Edinburgh at the far end of a kitchen-come-boardroom. I’m taken by the several piles of empty brown iMac computer boxes stacked along an entire wall and the Norman Rockwell-esque painting opposite; technology in stark contract to a simpler time. An A3 flip chart stands scrawled with technical graffiti across the pages of its hung paper stack and onto the white backing at every angle. It’s like a physical metaphor for thinking beyond the borders, outside the box, as if the ideas within this business couldn’t wait for the paper to be resupplied. The image is a mantra not only for Jumpstart’s Edinburgh office but for the man who’s driving it forward. When I couch my initial hearing of R&D tax credit support as ‘more likely the ask of bespectacled scientists in white lab coats who busy themselves amongst test tubes and Tsetse flies’, Brian smiles lightly. “I met Don (Galloway) and Richard (Edwards) of Jumpstart at a lunch a few years back,” says Brian. “I thought the business was scalable, picked up on the professionalism, language and

“

With Jumpstart I realised the way I actually wanted to be involved in the business is through influencing and advising.

”

company vibe. They had been going for about a year. And when I looked into it I suddenly began to wonder why everybody wasn’t doing this! “It was like a perfect storm; a business and its attributes colliding with a UK-

”

wide need operating in challenging economic circumstances that would suck this forward. Everything collided at once. I was hooked. “I could see the bit that was missing, where I could add value, how to scale it up quickly and seize upon multiple routes to market.” He recalls the six months he spent checking the business out; describes how he asked himself: ‘Would I be as involved in the business today as I would have six months before?’ “If an explorer has a map is he really an explorer?” “I suppose once we knew it would work, it became a race; how can we match the potential for the business with actuality. I mean, if you know a business can double in size every six months, heck every three months, how can you keep up with the business growth, infrastructure, safeguard against business getting dropped, and keeping clients happy? We would make policy in the morning and rewrite it in the afternoon.” Brian has been involved now for two and a half years. The key here is the retention of relief for qualifying indirect activities under the R&D tax credits banner. And it’s happening to the tune of increased value of claims for such up by 10% to 15%. In short, the current regime is now inclined towards supporting the technology sector since, well, since there’s been a ‘tech sector’. “With Jumpstart I realised the way I actually wanted to be involved in the business is through influencing and advising. It works really well for me. And we’re not taking clients away from other people. We’re educating people who didn’t think they were eligible.”

SIDEPROFILE

Brian Williamson He’s Glasgow Caledonian University educated and an avid basketball player whose wildly successful management career with Weir Pumps included becoming the company’s youngest ever member of supervisory staff at twenty-two. His career there spanned fifteen years and the ascension to board level mover-and-shaker status across oil & gas, petrochemical and electronics divisions, with full P&L onus. He’s the real-deal in every traditional business sense. Brian launched his first business in 1995 which by 1998 was at £5m turnover. He sold up and took over as CEO of training business The Learning Organisation which he turned around into a top industry performer, led an MBO and after seven years sold that group. During this period he went into the oil & gas sector and by 2004 had sold that business to his management team. Thereafter he moved into the investor space to help primarily Scottishbased business grow to scale. He was also key in the Management Buy Out and formation, and now Executive Chairman, of Brightwork Limited, the Scottish-based recruitment company with turnover in excess of £15m and employing 30 full time staff.

FRANCHISING

HNW MAGAZINE OCT/NOV 2011

The Franchising Sector Resilience in Recession or a ‘Dead Cat Bounce’ A Financial Times journalist in the 80’s – era of Reaganomics and Japan’s perceived global domination – coined the term a ‘dead cat bounce’, an accurate albeit maudlin description of when a rapidly declining stock price shows a brief recovery. THE theory behind the words; if dropped from a great enough height even a dead cat would bounce. The feline flatline concept took hold, thereafter used to define everything from stock jitters to economic cycles, and most recently for the ‘latest’ recession/ recovery of 2011. So is our economy slipping again? Maybe, but sectors like social enterprise and franchising are thriving the downturn, moody summer stockmarket be damned. Statistics from the British Franchise Association (BFA) show that nine out of ten franchises have remained profitable throughout the recession. Those are impressive numbers in a time when economic generalisations to the negative are our daily bread. Now let’s not throw the cat in with the bathwater, as some specific sectors within UK franchising have suffered, but the systems-based tried and tested model has shown resiliency in difficult times. Point of fact, the greater the frequency or repetition of a franchised concept the greater the chance of the next opening’s success. These long-term franchised brands are visible, well established and stable; Mail Boxes Etc, Signs Express, Rainbow International, GreenThumb, Metro Rod. The system and support in which a franchisee invests produced a solid return – a balanced and potentially generational investment. So how do you get into the sector? Some two-thirds of franchisees in the last

twenty-four months purchased into an existing franchised business. It’s called a franchise resale as opposed to a new start-up and comes with some more obvious perks: • • • • • •

Existing customer base Day 1 cash flows Trained staff Supplier relationships Brand presence in the market A going concern

Resale in the sector is a growing trend amongst successful franchises as approximately 10% franchisees changed ownership in 2010 and one-third of franchisors have over a decade of experience in their networks. Additionally, some 90% of franchisees reported (BFA survey) that their business is in profit, securing a healthy element to the economy and opening the future resale market to grow wealth. Over the last three years the turnover of the UK franchise industry has grown from £11.8bn to £12.4bn (2009 to 2011) with the overall number of franchises systems at 897, up from 842 in the same period. Employment in the sector has also risen

in kind from 465,000 to 521,000, an alltime high. However, even as 90% of franchisees reported profitability one quarter of all early stage businesses – the first two years of trading – reported losses, the highest figures for many years. While that last statistic keeps our expectations in touch, it’s a long way from falling felines in a sector that is anything but dead or dying. Profile of franchise owners • 79% of all franchisees are married. • The average age of for a franchisee is now 47. The average age of new entrants is 42. Only 6% of franchisees are 30 or younger, whilst 9% are over 60. • 61% of new franchisee recruits are male. Over a third of new recruits are therefore women. • The number of graduates operating franchise units is 32%. • 13% of new entrants are of Asian background. Finance The average initial outlay for setting up a franchise is £81,900, though again this varies dependent on the sector.

Outlook The franchising marketplace as a whole is generally optimistic about their future, although less so about the economy generally. When asked about their expectations over the next 12 months 74% of franchisors (78% in 2009 and 55% in 2008) and 52% of franchisees (55% and 35% respectively) forecast an improvement in their business. These are similar figures to 2009. One-third of franchisors have an operation elsewhere in the world. (source: NatWest/bfa Franchise Survey 2009 & 2011)

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HNW MAGAZINE OCT/NOV 2011

ENTREPRENEURIAL SPARK

Entrepreneurial Spark’s Business Start-Up Renaissance Entrepreneur Jim Duffy has launched Scotland’s first business accelerator programme, Entrepreneurial Spark, giving entrepreneurs access to free advice and guidance from some of the country’s top business leaders.

ENTREPRENEURIAL SPARK

HNW MAGAZINE OCT/NOV 2011

“

The whole idea was that these people would come on board, give free stuff, support Entrepreneurial Spark and then support the start-up ‘chicklets’, as we call them, that want to go through our hatchery.

ENTREPRENEUR Jim Duffy has launched Scotland’s first business accelerator programme, Entrepreneurial Spark, giving entrepreneurs access to free advice and guidance from some of the country’s top business leaders. A former police officer turned new wealth creator (NWC) through the development of licensing trade and car valeting businesses, Duffy created the idea for the facility to support and drive growth amongst entrepreneurs. The not-for-profit company arrives at a crucial time for Scotland as difficult economic conditions have been blamed in part for a “lost generation” of Scottish entrepreneurs. That was the conclusion of the Global Entrepreneurship Monitor’s (GEM) annual report this summer wherein a lower level of company start-up activities for people in their 30s than in the rest of the UK was revealed. The report said universal provision of training in starting a business in colleges and universities was needed and that young entrepreneurs were increasingly relying on family for financial assistance and advice. Key GEM report findings included: * 43% of working age adults in Scotland who thought there were good opportunities for starting a business agreed that fear of failure would stop them from doing so. * Scotland’s Total Early-Stage Entrepreneurial Activity (TEA) rate was unchanged at 3.7% - significantly lower than the UK rate of 5.6%. * 56% of young (18-29) early-stage entrepreneurs surveyed between 2003

”

and 2010 thought there were adequate sources of start-up finance compared to 46% in England, 35% in Northern Ireland and 30% in Wales. Mr Duffy’s incubator was designed to help address this problem and provide an alternative for start-ups who might otherwise go to consultants to develop their businesses. Interestingly, Spark isn’t coining itself under the banner of attracting “highgrowth companies” but rather “highgrowth individuals”. And Mr Duffy’s vision and enthusiasm did not go unsupported. Scottish businessmen Sir Tom Hunter and Willie Haughey OBE have opted to back Mr Duffy’s programme, the former through a generous financial package and the latter by providing fitted out hot-desking facilities and 6,000 sq ft of meeting space at City Refrigeration’s Caledonia House headquarters in Glasgow. While the amount given by Mr Hunter toward the project is undisclosed the value of the property space and support donated by Mr Haughey has been estimated at about £1 million over the next three to four years. Additionally, mentoring support is being provided by top business school Babson College in Boston. Members of the programme, deemed “a business start-up renaissance” by Entrepreneurial Spark’s MD Jim Duffy, can access work space, IT and network with other members at the new Glasgow hub. Central to the initiative is a series of four intensive 45-90-day business accelerator programmes designed to create entrepreneurial growth and guide new

wealth creators as they get their business ideas off the ground. Up to 25 entrepreneurs can be accommodated at any one time at the Entrepreneurial Spark facility, but these individuals will need to pitch their ideas to Jim Duffy and his team before being accepted. Jim said: “Scotland needs to invest in its entrepreneurs, and while there are several organisations out there doing great work to encourage new business start-ups, nothing exists like this so far. We will help entrepreneurs take the germ of an idea, or a burgeoning enterprise, and give them the tools and close guidance required to turn that into a fully-functioning, profitable business which creates wealth and jobs for the Scottish economy.” “The whole idea was that these people would come on board, give free stuff, support Entrepreneurial Spark and then support the start-up ‘chicklets’, as we call them, that want to go through our hatchery.” A host of supporting Scottish businesses have come together to bolster the new initiative with commitments from law firm Harper Macleod, Glasgow Caledonian University, accountancy practice RSM Tenon, PR firm the Big Partnership and professional social networking business Kiltr.com Sir Tom Hunter said: “Jim’s concept for Entrepreneurial Spark is the sort of bold initiative we need to stimulate high growth businesses; given the perilous state of the economy and the issues facing start-ups this builds a key element into the support mechanisms on offer to those businesses getting going.” “Willie’s support is phenomenal

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ENTREPRENEURIAL SPARK

and I hope many more from the entrepreneurial community get behind this exceptional business offering.” Willie Haughey, the entrepreneur who founded facilities management firm City Refrigeration, said: “Scotland has been screaming out for something like Entrepreneurial Spark for years, and it’s the kind of thing which those of us who have created successful businesses absolutely have to get behind.” Entrepreneurial Spark’s move to provide facilities and advice free of charge to nascent enterprises has been extremely well-received with applications already received by Mr Duffy and his team to become members. Set up as a social enterprise to ensure members will not have to give away any equity in exchange for this support, the organisation is seeking individuals and organisations to donate funds, facilities and expertise to help create businesses. Each start-up business member can access Spark support for up to one year and work collaboratively with the network of support agencies and professional service providers. Mr Duffy’s role will involve managing the programme on a day-to-day basis. Approximately 20 business leaders have thus far committed their time as mentors. “Nowhere else in Scotland provides that kind of access to such a high level of expertise and know-how, and I’m incredibly excited about the potential for Entrepreneurial Spark to create some great new Scottish business success stories,” Duffy said.

HNW MAGAZINE OCT/NOV 2011

“

Nowhere else in Scotland provides that kind of access to such a high level of expertise and knowhow, and I’m incredibly excited about the potential for Entrepreneurial Spark to create some great new Scottish business success stories. for Enterprise’s work in universities persuading students to think about setting up their own businesses. And how do we measure start-up activity in Scotland? VAT/PAYE registrations. And that practice excludes the dearth of smaller businesses that dominate Scotland’s economy. That said the statistics actually show Scotland and Wales are the same with 34 registrations per 10,000 of the adult population in 2009, some distance behind the UK figure of 47 start-ups per 10,000. The Committee of Scottish Clearing Banks produces business start-up statistics every quarter. Last year the four banks who take part in the survey

”

- Bank of Scotland, the Royal Bank of Scotland, Clydesdale and Lloyds TSB Scotland - recorded 15,439 start ups, slightly down from 15,726 in 2009. However the survey excludes some major banks with strong business activity in Scotland such as Barclays, Santander, Cooperative Bank and HSBC. Business Gateway claimed to have helped 11,242 business set up in the 12 months to the end of March - a 6.3 per cent increase on the same period the previous year, but are these the Holy Grail high growth businesses that create employment rather than just an enhanced lifestyle for sole proprietors? The overriding question is how far behind are we and should we have an Entrepreneurial Spark in every city in the UK?

“

Scotland needs to invest in its entrepreneurs, and while there are several organisations out there doing great work to encourage new business start-ups, nothing exists like this so far.

”

But why, despite years of campaigns to persuade schoolchildren and students that starting up a business is a good thing to do, is there apparently such a reluctance to do it? And why does Scotland continue to lag behind the rest of the UK in the business start-up stakes? In Scotland millions of pounds of public money have been spent on the Determined to Succeed programme in schools over the past decade together with a somewhat more modest amount supporting the Scottish Institute

Willie Haughey (left) and Sir Tom Hunter (right) inspect the facilities for entrepreneurs.

The Converge Challenge

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2011

Congratulations ‘Bellrock Technology, University of Strathclyde’

1st prize Winner of £25,000 in cash & £20,000 in business support

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ECONOMY

HNW MAGAZINE OCT/NOV 2011

The Ecosse Economy OT DU O E T SHO O O CU T C T AN BA C CK EL S LE ! D

While the new Coalition Government in the UK has expressed its commitment to a substantial reduction in the level of public spending, Scotland’s overreliance on government jobs and subsidies could mean painful times ahead. PREDICTING pain and thresholds for these events are more often than not exercises in woolly-edged economics or consensus view navel gazing than the cement foundations of nascent truths.

But what is certain is that Scotland’s public sector expenditure across defence, administration, health, education and social work was £19 billion, or one-fifth of total Scottish GDP last year. By contrast, the figure for the UK as a whole was 17.5%. It is then of little surprise that this is considered too high, far too high in some quarters, and those with batteries in their calculators are seeking obvious consensus points for active financial change. Enter the pain. The factors for change, for reducing public expenditure, are clear and begin with the premise that those in power should have begun the process some years ago.

“When did Noah build the ark? Before the rains came, Gladys, before the rain.” Robert Redford, Spy Game It is of little surprise that this is considered too high, far too high in some quarters, and those with batteries in their calculators are seeking obvious consensus points for active financial change.

Consider three factors:

Recession has resulted from the relaxation of the financial rules; property sector bubbles, the Lehman collapse, Reykjavik, rises in unemployment.

1) When money is coming out of the public purse faster than it’s coming in through UK tax revenues, at some point the party is going to have to end

But recessions are often wish-points to increase public spending, cushion the blow, thus the choice by the previous Labour Government-come-Scottish Government to do so.

2) Scotland’s been at the party since the doors opened

Spend your way out of the problem. Give it the Nick Leeson treatment. And

3) Mix the above two factors with a £multi-billion bank bail-out and you’ve exceeded the pain threshold.

“

when the swell comes back on you, go on, spend some more. This new Coalition Government has opted out of that cycle. Expenditure cuts, tax increases; it doesn’t ever bode well for an economy like Scotland’s whose annual pay cheque arrives in what is essentially a yearly grant. And what of those public sector areas not in Scottish control, welfare and defence? Down, baby, down. Bet not the future on seeking out a new role in the public sector. Look to make a small economy of your own; a new business, a social enterprise, a franchisee, a new wealth creator. Because the Ecosse economy needs you.

“When did Noah build the ark? Before the rains came, Gladys, before the rain.”

”

ECONOMY & INTERNATIONAL

HNW MAGAZINE OCT/NOV 2011

BRAZIL

IT boasts the world’s 10th largest economy, its 5th largest country by population (200 million), an 88% literacy rate and the best gross domestic product (GDP) growth on the planet in 2010. And just one month ago, the female leader of the largest catholic nation in the world and 4th largest recipient of European investment, President Dilma Rousseff, became the first woman to open the UN General Assembly. But Brazil, like the rest of the world, has also felt the ramifications of global recession, though the South American coffee capital could at best only be downgraded from great, to pretty darned good. The beneficiary of US$9bn in 2010 has jumped up to over US$22bn in the first seven months of this year, even as President Rousseff recently made clear that investors in telecommunications

and air transport, alongside growing automotive industry sector relationships - enticed in by sweet-deal tax incentives are being eagerly sought. Rousseff, who took office in January, leads one of the leading economies in the Mercosur trade bloc that includes Paraguay and Uruguay, and one which has been engaged with ‘difficult’ trade talks with the EU. One of several mainstay issues between the Mercosur and the EU is Argentina’s new import licence measures and Brazil’s new tax hikes on the automotive industry which are broadly considered to be discriminatory against imports. Of slightly larger concern is the surprise cut in interest rates at the end of August. The move served to trigger a 15% drop in value of the Brazilian real against the $US; a potential boon to the industrial sector but a pressure cooker for an already inflated inflation rate. And while still impressive, many consider the impact of financial market turbulence over the last ten weeks has served to bring Brazil’s economy off the boil – leading to a slight downgrade in Brazil’s GDP growth forecast for 2012.

Still, a revised 3% to 4% growth forecast for the foreseeable future is no mean feat when weighed against its European and US counterparts, though a few steps back on the BRICs group of emerging markets. If there is a worrying element, beyond Brazil’s worst-performing stock market index in the world, it’s the nation’s middle-class consumer group whose waning ability to snap up cars and TVs at a formerly record pace is no more evident than in the rising default rates. Though we should not be astonished by a middle class in over their heads in debt, lest we be called hypocritical on these shores! Certainly offshore oil and construction appear robust and crucial factors like demographics and low national debt work strongly in the country’s favour. Let the pace of China’s overeager provinces outside Beijing be a lesson that perhaps some welcome slower growth in Brazil could, without becoming detrimental, help calm inflation and prevent a future collapse.

2011

Awards Ceremony& Dinner 24th November 2011

Join us for an exciting evening celebrating the success of our members and fellow entrepreneurs at our 2nd black tie Annual Awards Ceremony & Formal Dinner. The evening commences at 7pm with a drinks reception followed by a 2 course dinner and coffee before we introduce the Awards and announce our winners in the following categories:

Entrepreneur of The Year Young Entrepreneur of The Year Most Innovative Business High Growth Company of The Year - sponsored by HNW Scotland Following on from the Awards, you will be entertained with live music from The Favours including covers and ceilidh dancing followed by a disco. Itâ&#x20AC;&#x2122;s not been an easy year economically and we have therefore kept our ticket price as reasonable as possible. The price of ÂŁ70 includes a glass of prosecco, dinner, half a bottle of wine per person & coffee/tea. A cash bar will be available. Tickets are available to purchase individually, as a half table of 5 or as a full table of 10. We hope you will be able to join us for a fantastic evening and if you have any queries then please email: hello@wedoscotland.co If you or any of your guests have any special dietary requirements then please email us: hello@wedoscotland.co at the time of booking. Please note that capacity at Ghillie Dhu is limited to 150 people and tickets are sold on a first come, first served basis so please book as soon as you can to avoid disappointment. An invoice receipt will be emailed to you once you have booked your ticket(s). With thanks to our sponsors: http://www.everycare.co.uk/edinburgh http://www.coffeewithalid.co.uk http://www.savav.co.uk

HNW MAGAZINE OCT/NOV 2011

The Award Nominees Paul Bodger, Managing Director, Anytime Leisure www.anytimeleisure.co.uk Anytime was created to bring together an experienced and committed team that understands fitness with over 40 years of experience in supplying fitness equipment to both the home and commercial markets. Mark Boyde, Managing Director, NAC Networks www.naces.co.uk Founded in 1995, our history tells a story of continued re-investment and development of leading-edge telecommunications services.

Event Co-Host & Sponsor High Growth Company of the Year Award HNW Magazine www.hnwmagazine.co.uk Dinner Sponsor NAC www.naces.co.uk Drinks Reception Sponsor Everycare Edinburgh www.everycareedinburgh.co.uk

Mike Wynn, Managing Director, Construction & Property Recruitment www.cprecruitment.co.uk C&P Recruitmentâ&#x20AC;&#x2122;s main focus is within the Construction & Property and Oil & Gas sectors. We provide a personalised service and recruit for contractors, consultancies and public sector clients on a freelance and permanent basis.

Awards Ceremony Production Coffee With A Lid www.coffeewithalid.co.uk

Suzie McCafferty, Managing Director, Platinum Wave www.platinumwave.co.uk Platinum Wave provides clients with strategic, dynamic advice, a wealth of experience and an opportunity to grow business through long-term partnerships.

Filming MB Productions www.mbpltd.co.uk

Val Wishart, Managing Director, Beyond The Numbers www.beyondthenumbersca.co.uk Beyond the Numbers is a small, friendly and approachable accountancy and business consultancy practice in Edinburgh, offering a range of services to businesses and individuals. Chris Davidson, Managing Director, Webit Technologies www.webit-tech.co.uk Webit Technologies are not simply developers, we have the knowledge, expertise and experience to offer you an objective analysis on virtually any IT issue. John Hall, Chairman & VP Finance & Ian Cander, VP Sales & Strategy, Pod-mobile www.podmobile.com Pod-mobile has created a range of dynamic modular cells that are totally secure and finished to standards of the highest quality. Pod products represent the ultimate in versatility. Justin Hutton-Penman, Managing Partner, Flock www.flockthinks.com Flock is a design and advertising agency creating identities and literature, developing marketing strategies, designing packaging and executing advertising and direct mail campaigns. Justine Mitchell, Managing Director, Chamomile Sanctuary www.chamomilesanctuary.com Chamomile is an elegant beauty sanctuary in the heart of Edinburghâ&#x20AC;&#x2122;s West End with a tranquil atmosphere and heavenly relaxation room that soothes and engages all your senses.

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Photography Mike Ramsay Images www.photoboxgallery.com Event Co-Host & Sponsor High Growth Company of the Year Award HNW Magazine www.hnwmagazine.co.uk Dinner Sponsor NAC www.naces.co.uk Drinks Reception Sponsor Everycare Edinburgh www.everycareedinburgh.co.uk Awards Ceremony Production Coffee With A Lid www.coffeewithalid.co.uk AV Equipment Supplier Sound + Vision www.savav.co.uk Filming MB Productions www.mbpltd.co.uk Photography Mike Ramsay Images www.photoboxgallery.com

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BUSINESS

HNW MAGAZINE OCT/NOV 2011

The Business of Acceleration

Of Seedcamps and Y Combinators What have we learned about building tech start-ups in the decade since the dot.com era boom & bust? THE short answer is ‘business acceleration’, a programme and model around which has grown an entire ecosystem, born once again in the cradle of tech innovation that is Silicon Valley. It was six years ago in 2005 that a new method of incubating technology startups was landed by angel investor Paul Graham. Paul set up Y Combinator in ‘The Valley’ and proceeded to select a group of eight tech start-ups for an experimental programme that was destined to transform the high-growth start-up landscape. And this isn’t just a California tale. Two years later investors David Cohen and Brad Feld followed suit, setting up Techstars just north of Mr Graham’s venture in Boulder, Colorado. At about the same time in London, Saul Klein and Reshma Sohoni were beginning the first cycle of business accelerator Seedcamp on this side of the Atlantic, which has become a panEuropean phenomenon eliciting over 2,000 applications each year. But what is it? Despite overwhelming interest in the start-up boot camp programme, that

now sees Y Combinator receive one application every minute, there’s little by way of formal analysis about how it works. The simplest answer is that accelerators, as it says on the tin, speed up the development of a class of start-ups through a mentoring, support and funding programme that a group of companies are then put through. Accelerator programmes have five main features that differentiate them from other investment and incubation initiatives: 1) There is a highly competitive process that is open to all 2) Seed investment is provided in return for equity 3) The focus is on small teams as opposed to individuals 4) The mentoring and events programme is time-bound 5) It is a class of start ups rather than just a focus on individual companies

From one accelerator programme has grown dozens in the US, who now provide start-up funding for hundreds of businesses each year.

And there are coinciding high-profile success stories, evidence of rapid learning and the creation of strong networks that appear to help new business leaders become better entrepreneurs.

Start-ups funded by accelerator programmes in the US have grown from approximately ten in 2005 to over 180 in 2010. So what has driven the new paradigm? The changing economics of startingup have certainly helped give rise to accelerator programmes as the costs associated for new business creation have dropped sharply in the last decade. Three trends driving accelerators: • Cheaper technology costs • Easier routes to customer acquisition • Better forms of direct monetisation (Source; NESTA)

This has opened the door to lower cost-per-entry investment – circa £10k to £50k - where prior the price tag for digital angel investment was far higher, with less formal tried and tested support systems in place and higher risk.

BUSINESS

The accelerator model also appears to have helped create pipelines of investable companies to filter talent and create connections with mentors and strategic resources. And even now these programmes are up-scaling right here in our backyard. On the back of the January 2011 US announcement that investors Yuri Milner and Ron Conway would invest $150,000 in every single start-up in Y Combinator’s Mountain View, California accelerator programme, the UK contingent has also stepped up. In July 2011 it was announced that Europe’s first £1million digital start-up accelerator programme “Ignite 100” would launch in Newcastle. Funded and supported by two venture capital firms, Ignite 100 offers a 13-week mentoring programme for a handful of promising new mobile and multimedia companies. And if these ten elite companies hit their respective targets they are in line to receive up to £100k each. However, even after a full four years since Seedcamp launched onto the UK scene hordes of entrepreneurs and eagle-eyed angels know little about organisations like Y Combinator and Techstars, and even their European counterparts. Are we worried about another collapse? Are the headlines too good to be true? There are detractors, of course, to this new breeding ground for investment that hot-houses start-ups with advice and mentoring while putting them under the microscope to see how they cope under pressure. But the evidence of success is coming through now by way of real business exits; the Holy Grail of every opportunity from the angel investor perspective. Some of those exits are impressive like London-based Seedcamp’s graduate, Mobclix, which was recently acquired by Velti for £50m. And Seedcamp also has two other exits under its belt. But these seemingly lavish funding opportunities for start-ups are reminiscent of a decade ago and the

HNW MAGAZINE OCT/NOV 2011

wary would question if this is an easing process back into the pathway to dot. com gloom. According to innovation advisory and investor organisation the National Endowment for Science, Technology and the Arts (NESTA), Europe is now home to ten separate accelerator programmes and there appears to be more on the horizon. Many more. Seasoned Internet entrepreneur Paul Miller and NESTA report co-author believes business accelerators will shoot up across Europe at an even more rapid pace: “It (the profile of business accelerators) is growing fast in the US. Europe is about two or three years behind that curve, but we can see Europe following. There are about 40 programmes in the US, and we think Europe will get to that level in two years’ time.”

in other sectors, such as healthcare, being embraced by the accelerator.” There are now four major accelerators in the UK alongside Ignite 100 which include Birmingham-based Oxygen, Springboard in Cambridge and the original Seedcamp in London. And what of the other major UK cities? You need look no further than Glasgow – see this issue of HNW Magazine, Entrepreneurial Spark: A Business StartUp Renaissance – to see examples of the burgeoning incubator and accelerator sector right here in Scotland. Scotland arguably has one of the best organised angel syndicate and investment communities in the UK with leading lights Paul Atkinson of Par Equity, Acrhangels’ Mike Rutterford and David Grahame and Nelson Gray of LINC Scotland. This community of expertise, according to Mr Miller, is key to accelerator success: “You need a good community of mentors that you can connect the companies

The simplest answer is that accelerators, as it says on the tin, speed up the development of a class of start-ups through a mentoring, support and funding programme that a group of companies are then put through. “At the moment they (accelerators) are definitely focused on tech and mobile… but we are starting to see tech ventures in other sectors, such as healthcare, being embraced by the accelerator.” Paul Miller “We already know of a couple of programmes which open in Europe next year. Start-up Bootcamp, which has been running in Copenhagen and Madrid, is opening up in London and Berlin.” Is it just about tech and mobile start-up funding? The technology and mobile space requires little by way of a profile boost in the high-growth start-up space. But Paul Miller isn’t sold on this simply remaining in tech and mobile believing instead that the focus will likely widen with accelerator proliferation, saying: “At the moment they (accelerators) are definitely focused on tech and mobile… but we are starting to see tech ventures

to, this is one of the most important things in setting up an accelerator, and it’s key to deciding where to create one. You have to look at what the local community’s good at.” So what’s next? The exponential rise of accelerator programmes appears imminent on the horizon and as such could become the most common future route for ambitious new wealth creators to take their first crucial steps. There is however, always reason for caution alongside optimism. The long-term business model for acceleration is just that; a long game. Developments in the ‘correctness’ of running this type of programme will only come with time, failure and success. The people will be the key.

MIKE FROM MANHATTAN

HNW MAGAZINE OCT/NOV 2011

MIKE WILLIAMS: THE VIEW FROM MANHATTAN

“It’s never been this bad…” The globe is facing one of those periods where, strangely, there is plenty of money around but, alas, it’s in the wrong place. POOR jobs growth, intense political disagreement, social unrest, banking turmoil, fear gauges hitting highs, an intense hatred for stocks, clear money flows running from the market, widespread consumer pressures, a dire outlook in sentiment gauges and rampant headlines showing everyone all the more reason to fear.

deficits to levels then never seen before and suggesting “the benefits would trickle down” to the rest of the country.

But hold on a minute.

Later in the early 90’s, when we had our last banking and real estate driven collapse, the US lost over 1500 banks and S&Ls, unemployment rose to nearly 8%, politicians were under fire, interest rates were 9% and inflation was 5.5%.

The auto business is back on track. During September, retail auto sales totalled 13.1 million units, up from a recent low of 11.5 million units during June, and back near its high for the year of 13.2 million units in February. Durable goods orders are up as well. Boeing is finally shipping 787”s and the backlog hints at significant upside in industrial orders moving ahead. Exports are at all-time highs, as is productivity and output on the ground. And retailers, for all the talk about the consumer buckling, are doing just fine in the “worst quarter in years”. What we must learn to embrace is the idea that when we feel terrible and the outlook is dire, the crowd has made things cheap for us. The Five Most Expensive Words in Business, “It’s never been this bad…” In 1982, President Reagan was perceived as an idiot for cutting taxes, driving

Inflation was 15.5%, the prime rate was 20%, unemployment was nearly 10% (again) and gold hit $850 an ounce driven by rampant fear as mortgages rose above 17%!

At its low point in the early 90’s, the Dow hit near 2300, still almost 3 times higher than in 1982 back when: “It had never been this bad”. Today, interest rates are near zero, mortgages are 4%, household income is at record highs, profit margins are at record highs, cash on balance sheets is at record highs, costs of debt for growth is near record lows, forward earnings are approaching record highs, gold is bantered about hourly and is approaching $1,400 even as unemployment rates are once again near 10%. The Dow is fluttering around 11,500, almost 5 times higher than in the early 90’s and nearly 12 times higher than in the early 80’. So consider three good lessons I’ve learned since 1982: 1) “It” has been much worse.

2) The future is always cloudy. 3) Sometimes you’re ahead, and sometimes you’re behind. But the race is long, and in the end that race is only against yourself. And what of the earnings? How did the S&P 500 do in earnings “back then”? 2001: $38.85 2002: $46.04 2003: $54.69 2004: $67.68 2005: $76.45 In 2008 and 2009, those SP earnings were $65.39 and $60.80, respectively. This year, two years out from the worst financial events we can recall, we have moved that up to roughly $95.00. Now we are told that the “danger we face” is that earnings next year “are not going to meet expectations” and are likely closer to $90 to $95. You mean about what they are this year, right? Consider that if next year’s earnings were “only $90.00”, an unlikely result, then we would be over 125% higher than seen at our darkest moments in 2001, over 100% higher than the recovery year of 2002, 80% higher than in 2003, almost 50% higher than 2004 and over 35% higher than 2005. Mike Williams is the Managing Partner at Genesis Asset Management in Manhattan, NY and a regular commentator on CNBC.

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THE NETWORKS

HNW MAGAZINE OCT/NOV 2011

HNW magazine prizes its relationships with leading organisations in the entrepreneurial and investor sectors and is delighted to provide direct links and information to these organisations below. ASAM – www.alansteel.com If the confusing messages in the financial media leave you not knowing which way to turn, and you want to reduce your risk and organise your future with more certainty, contact Alan Steel Asset Management’s award-winning team.

LINC – www.lincscot.co.uk The national association for business angels in Scotland, with a membership network of hundreds of investors including those operating individually, many of the best known groups and syndicates, and a number of significant private offices.

Angels Den – www.angelsden.co.uk The only Angel investment network to provide free business funding clinics and one-to-one pitching at regular SpeedFunding events throughout the UK and Asia, with regional managers dedicated to supporting and introducing you to the right Angels.

Jumpstart – www.jumpstartuk.co.uk The leading research and development (R&D) tax credits advisory business for companies throughout the UK with a 100% success rate for Government R&D Tax Credit applications. WeDO – www.wedoscotland.co WeDO (We Develop Opportunities) is one of Scotland’s most exclusive collaboration organisations bringing together some of the country’s most successful and emerging high growth entrepreneurs to share knowledge, ideas and experiences.

Gecko New Media – www.geckonewmedia.com The straight-talking Edinburgh-based digital agency that helps you make sense of the web, providing strategic planning, design & build and leading edge solutions that help your business grow.

Thrive for Business – www.thriveforbusiness.co.uk Thrive is a membership based networking organisation for business-tobusiness SMEs across Scotland bringing together like-minded individuals willing to share knowledge, ideas and contacts in an unrivalled atmosphere of talent and enthusiasm. Footdown – www.footdown.com Mentoring. Insight. Coaching. Footdown is passionate about improving the performance and quality of leaders, and works from within a peer group to inspire, inform and help leaders respond better to all challenges.

Par Equity – www.parequity.com Par Equity is an investment firm with a difference. We bring a pragmatic, hands on investment approach and extensive business experience to investment opportunities that have the potential for significant returns. Scottish Social Enterprise Coalition – www.socialenterprisescotland.org.uk Social Enterprise Scotland is the national collective voice for social enterprise in Scotland, bringing together social enterprise and its supporters into a strong force for change. Kiltr – www.kiltr.com Kiltr is a leading edge professional social network for everyone with a Scottish connection, founded with the local-to-international Scottish Diaspora at its centre. Vistage – www.vistage.co.uk The Vistage experience blends the power of a peer group with private coaching sessions and is led by a trusted, seasoned advisor, with fresh ideas and perspectives from thought leaders around the world.

WEALTH MANAGEMENT

HNW MAGAZINE OCT/NOV 2011

Raising Money: A Tale of Two Cities In considering how to raise money in the current challenging climate for some reason one thinks of Charles Dickens as portrayed in film. NOT the scene made famous by W C Fields as Mr Micawber in David Copperfield, where he states: “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result…happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result…misery.” We will though come back to this quote later. The scene in fact is a youthful Mark Lester as Oliver Twist asking Mr Bumble (Harry Secombe) for more. The now infamous line: “Please sir can I have some more”. Mr Bumble’s response of incredulity verging on anger is not dissimilar to how banks have been responding to requests for “more” funding. Let us though start by shooting the oft repeated canard that banks are not lending. The truth is that they are. Even the Big 2 now publicly owned institutions who have strong reasons to strengthen their balance sheets and reduce their exposure to questionable debt. Is that lending easy to obtain? Well that’s where the problem lies because it certainly is not. Anyone looking to raise funds has to consider that it will take much longer to raise monies than it used to and you better have a robust business plan / proposition which has strong positive cash flows. Which returns us to the original Micawber quote. This is not a plea to keep poor accountants busy but when preparing business plans and forecasts, get the numbers as accurate as possible and ensure they reflect plenty “headroom”; unlike Mr Micawber’s financials.

Funders of both debt and equity pull numbers apart to see how they stand up not just to rainy days but to Scottish summers. Now on to the tale of two cities. Scotland can be justifiably proud of its Angel networks. They are well-embedded and if you have a sound idea they will do their best to fund. The problem is that a slow down in debt funding, particularly for new businesses, has meant calls on existing equity funders, which in turn has left less equity for new ideas, start ups, etc. Where the contrast between the two cities of London and Edinburgh is most marked is debt funding. One can’t help when down in the “big smoke” on business be very aware that there are substantially more funds available. Furthermore the decision makers are there as well which concentrates fund

raising 440 miles from Edinburgh. That does not make fundraising efficient and we should realistically expect matters to change. In short, all roads now lead to London. As such, three pieces of advice: First, in the current climate give yourself plenty of time for fundraising and produce a set of investment docs including financials which present your proposal as best as possible. Second, tap into existing debt and equity funders not just in Scotland but in London. And third, in these difficult times for fundraising what I don’t recommend is adopting the Micawber Principle based upon his hopeful observation that “something will turn up”. Stephen Paterson is a director of Haines Watts.

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PRACTICAL BUSINESS

Practical Business HNW Magazine’s Practical Business section looks at key areas of business needs across legal, accountancy, marketing, finance, strategy, development, property and other required services. This issue considers the impact of disruptive technologies on the legal sector, the line between tax avoidance practice and tax evasion and the revelation of “Google X”, the secret California laboratory whose projects have little do with Google’s core business algorithm.

LEGAL: The Disruptive Technology Gold Rush

ACCOUNTANCY: Tax Evasion versus Tax Avoidance

“GOOGLE X”: The Secret California Laboratory

WHAT WILL OUTSELL AND OUTPERFORM THE CURRENT LEGAL MODEL

WEIGHING UP COMMERCIAL RISK VERSUS THE POTENTIAL BENEFITS

ARE FAR-FETCHED INNOVATION PROJECTS THE NEW WAY FORWARD FOR GOOGLE?

PRACTICAL BUSINESS

HNW MAGAZINE OCT/NOV 2011

The Legal Market ‘Gold Rush’ Recently I’ve been having discussions with some very senior players in the legal marketplace about the impending gold rush. The gold rush is one of new technologies. And I call it a gold rush because of the plethora of new legal models that have (overseas) and will (over here) outsell and outperform the existing legal paradigms through these disruptive technologies. BUT like a good gold rush, while we know that there’s gold out there we don’t know exactly where. And by the same reasoning we can see the new technologies en route but are not sure as yet which one will outsell and out-profit the others. The legal marketplace is now the next target of opportunity for Venture Capital (VC) funds suggesting the time is NOW to take stock of where you are as a firm and more importantly, where you are going. And if you’ve not yet read Richard Susskind’s book “The End of Lawyers?” and the impact of technology on the sector then you should. . On the one hand ‘disruption’ means changing the way things operate by making them more efficient. But what are these disruptions and where are they happening? Here’s an eagles view of the ‘new legal world’ in the last few months: Rocket Lawyer has received investment from Google Ventures to the tune of £11.4million for its suite of templates of legal documents for consumers and offers a network of over 6,000 practising lawyers in the USA on hand to review (for free) forms created by Rocket Lawyer’s documentation system. Rocket Lawyer plans to enter the UK online legal market in 2012 because “the UK market is getting more receptive to new ways of consuming legal services”. They expect 20m people to use their service this year.

LegalZoom is one of the best known legal brands in the USA and has had $66 million injected into the business in the last few months by the Kleiner Bell Group. Not a law firm, LegalZoom provides legal documents created via its own documentation system with checks made by its Hollywood-based customer care team, who amend errors such as spelling mistakes, capitalisation and so on. LegalZoom also plans to enter the UK online legal market in 2012. Aderant, who acquired Client Services and CompuLaw for an undisclosed sum, is a software vendor used by law firms for billing, content management, and practice management is now the legal technology field’s largest independent software provider. Its newly expanded applications catalogue is similar to that of LexisNexis, but without content and research services. Legal365 is an online venture providing automated document assembly where lawyers will be on hand to help fill-out fixed fee legal documents that the customer has purchased online. It plans to roll-out a UK national network of city centre law shops. Legal365 will be driven by Epoq Legal, a desktop lawyer service already established in the UK. Look out for this as a franchise. LawCloud is an Edinburgh based offering from Lawware and has seen a big increase in take-up since launching earlier this year. Face2face Solicitors is a new UK national franchise for solicitors offering a harbour

The bottom line is this; if you are in a law firm of 15 partners or less then it really is time to decide where you want to be in the next 5 years.

The list of innovations and disruptive technologies is extensive and spans both large and small new legal firm offerings, impacting the local or national marketplace. in the storm for sole practitioners who want to branch out on their own. Law Pivot, as with RocketLawyer is also partly funded by Google ventures, provides Crowdsourced legal advice for businesses in the US. QualitySolicitors, founded by UK lawyer Craig Holt, is already up and running with its business model and now even includes concession stands in WH Smith known as Legal Access Points (LAP’s). The list of innovations and disruptive technologies is extensive and spans both large and small new legal firm offerings, impacting the local or national marketplace. The bottom line is this; if you are in a law firm of 15 partners or less then it really is time to decide where you want to be in the next 5 years. Doing nothing is not an option.

Ray McLennan

CMY

PRACTICAL BUSINESS

HNW MAGAZINE OCT/NOV 2011

Tax Avoidance vs Tax Evasion Tax avoidance strategies are very useful for the right person or company, particularly entrepreneurs who will be used to weighing up commercial risk against potential benefits. THESE strategies provide an additional element of choice and control over an individual or company’s tax affairs, but should always be undertaken with a full awareness and understanding of the potential consequences. But there’s a difference between avoidance and evasion and HMRC know exactly where the line is and the Revenue is keen to hold that line. Following up a voluntary amnesty program in 2010 that raised £500 million from middle-class professionals, HMRC this year reiterated its focus of cracking down on tax evasion with a goal of collecting £18 billion in revenue before 2015. While it would be easy to query the Revenue’s ability to even staff-up such a programme in difficult economic times, the perceived threat is often enough. Tax evasion is of course tax avoidance’s illegal cousin, where the latter practice and its many strategies are entirely legal and can be employed to ones advantage. And despite consultations going back many years, the UK has no general anti-avoidance rule, nor statute or legal principle to counter tax avoidance. Simply put tax avoidance helps to reduce the amount of tax that is payable by means that are within the law, as in using tax deductions, changing your tax status, residence or by establishing a company, trust or foundation in an offshore tax haven.

Simply put tax avoidance helps to reduce the amount of tax that is payable by means that are within the law, as in using tax deductions, changing your tax status, residence or by establishing a company, trust or foundation in an offshore tax haven. That said it can be all too easy to become seduced by the benefits of undertaking a tax strategy/tax avoidance scheme. That’s because the savings can be significant and although the fees can also be substantial, these are usually outweighed by the promised benefits. Problems arise when too little time is spent considering the risks and

downsides associated with participation in such a strategy particularly in terms of the reaction of HMRC and the ranges of possible outcomes. Don’t expect not to be challenged by the Revenue if you take up a tax avoidance strategy. An HMRC challenge is not a prison sentence, it’s a check-up.

But there’s a difference between avoidance and evasion and HMRC know exactly where the line is and the Revenue is keen to hold that line. Some of the considerations before travelling the tax avoidance path should be made: • Has the strategy been disclosed under DOTAS (Disclosure of Tax Avoidance Scheme) rules? • What is the likelihood of an HMRC enquiry resulting from participation? This may differ according to the strategy undertaken but often there will be a very high chance of an aspect enquiry arising and this should be properly explained and the process made clear. • Potential outcomes should include the possibility of a successful HMRC challenge. • All tax strategies will ultimately be legislated against and clients should be fully aware of this.

While seen by some as flouting the spirit of the law, tax avoidance is the right of everyone (individuals and companies alike) to pay no more tax than required.

• Clients should always do some homework on the strategy provider. Who are the people behind the strategy? What is their track record? In the event of prolonged HMRC enquiries are they likely to be around to assist with the defence of their strategy?

Ingenuity is not illegal.

• Beware of providers who use phrases like “HMRC approved” or “risk free”.

PRACTICAL BUSINESS

HNW MAGAZINE OCT/NOV 2011

“Google X” The 21st Century’s Most Useful Algorithm It’s like something out of a James Cameron sci-fi movie. THE New York Times recently reported about what had until then been only a hotly rumoured assumption, that Google has a secret laboratory where innovations far more sci-fi than core business algorithm-focused are being carried out. And the CIA-like security surrounding the secret Californian laboratory, known only by its “Google X” moniker, has protected projects so well that even Google’s own employees were unaware of the lab’s existence until the explosive NY Times exposé appeared. So what’s the frequency, Sergey Brin? It is alleged that some 100 futuristic challenges have been set by Google’s senior management. These range from the interesting to the downright bizarre; including connecting house plants to the internet, cars that can drive without human assistance and space elevators that can send people into stratosphere without the use of rockets. Can you search for any of this stuff? Not really. Is this then a roadmap on how technology firms perceive future innovation; taking projects off the grid entirely, without customer engagement or research, to create the next great thing? Thus the underground anorak-filled tech super fortress, complete with top

It is alleged that some 100 futuristic challenges have been set by Google’s senior management. 42

And the CIA-like security surrounding the secret Californian laboratory, known only by its “Google X” moniker, has protected projects so well that even Google’s own employees were unaware of the lab’s existence until the explosive NY Times exposé appeared. tech, buckets of research funding and... oh wait a minute, have they told the shareholders? Hmmmmmmm. But return to the multi-year secret programme and let’s see what’s been done and what’s coming up. First, Google X is hidden not just from the consumer and shareholder but also from competitors and the potential influences of the market. And in answer to the age old question, ‘does pure innovation really take place in a vacuum?’ perhaps this project will provide the answer. Customer insight be damned, in the words of the great industrialist Henry Ford in reference to the Model T in 1908, “If I had asked everyone what to create they would have told me that they wanted a faster horse”. The input from 700 million users would be difficult to collate, even for Google, and it’s unlikely a consensus would have arrived on delivering space elevators, web-connected appliances and robotic avatars so reminiscent of the film Surrogates it’s a bit creepy. Are the “100 Shoot-for-the-stars ideas” unrelated to Google’s core business? Yes. But Google’s founders are no fools. And some of these ‘farther afield projects’ as Sergey Brin describes them may be closer to fruition than fantasy. Take the project to make remotely controlled robots as stand-in workers to

complete tasks and gather information for employees who are sitting at home. Mr Brin was said to have even tested the idea himself by attending a conference via robot. Perhaps most interesting of the programmes revealed was “the web of things” concept, with renowned engineer Johnny Chung Lee (creator of Microsoft Kinect), that seeks to connect appliances and other objects, living and artificial, to the Internet. In an effort to guard against IP breaches and potential shareholder fallout Google spokesperson Jill Hazelbaker stated that, “While the possibilities are incredibly exciting, please do keep in mind that the sums involved are very small by comparison to the investments we make in our core businesses.”

But Google’s founders are no fools. And some of these ‘farther afield projects’ as Sergey Brin describes them may be closer to fruition than fantasy. Multi-year spending on secret laboratories focused on far-fetched ideas does not normally a happy investor make. However, previous incarnations of Google’s experiments have been positive deal-makers, including aerial Wi-Fi, gigabit ethernet connections, and selfdriving cars.

RUTHLESS

HNW MAGAZINE OCT/NOV 2011

Ruthlessly Stupid BoE’s £75bn in QE means more BS It would appear that the Bank of England (BoE), in its infinite wisdom, has opted to buy up 30% of the government bond market through its latest £75bn quantitative easing (QE) programme, a move prompting cries of BS. BANKING Shame, that is. You can’t help but trip over bank analysts united against this decision as gilts are trading at their lowest yields in a generation and as such any further reduction would have practically no real world impact.

What does it all mean? It won’t help secure the main objective; to get credit flowing. While consensus amongst analysts is a dubious path to follow, all hail ye contrarians, perhaps the herd has it right this time. The move would appear to ensure banks will remain reluctant to lend because they can’t issue bonds in sizeable enough quantities. The reason for this is that bond-holders will be forced further down the queue for payouts when banks run into difficulties. With the current prices in the markets for bank issued bonds being what they are the reckoning of the many is eventual ‘junk-status’. Financed by central bank reserves to the tune of approximately 4% of total UK GDP, the Bank of England’s decision was based on their assessment that credit will likely become harder to obtain and growth prospects for UK and Eurozone growth are slowing, with a constant flow of ‘dead tree press’ diatribes about an impending financial Armageddon. All of this despite indicators saying there’s more money in cash and corporate pockets than we’ve seen in a decade. So how good is the Bank at recessionsalvaging initiatives and inflation change assessments? Oops. Their recent inflation report (August) actually went some way to highlight the wealth of historic and recent misses in their consumer price index-to-targeting and forecasting.

And so it would appear that, in BS we trust. Or we’ll have to because we haven’t the option to stop them now at any rate. So where’s the logic? Is the Bank of England assuming such a dramatic fall in inflation will occur that this level of aggressive monetary policy action is now justified? The implications are, sadly, ambiguous. Amongst the resolutely optimistic (likely BoE board members) it could mean a new sense of market forecasting confidence where the planned four-month investment programme in gilts (bonds backed by the government) is a harbinger of a more positive belief in the economic future on the horizon. Or it could be a dire outlook for the coming years ahead which requires to be countered at huge cost, both in pure financial investment terms (£75bn) and by the expected market impact of that investment; driving down gilt yields and driving up inflation – with the strong potential of increasing UK pension scheme liabilities. Hey, what about the last quantitative easing programme? That one cost £200bn in 2009 to buy, you guessed it, Government bonds, resulting in gilt yields falling just shy of 1%. One has to wonder just how much more QE and BS the BoE can deliver up before we consider the possibility that maybe this isn’t such a good idea.

DIATRIBE

HNW MAGAZINE OCT/NOV 2011

It’s a mad mad mad mad mad mad world… A good friend, tech guru and herald of the bar code in Scotland (Stuart Angus) suggested quite darkly one evening that Scotland’s future lay in tourism. That’s right, ThistlEcosse, the global cradle of invention, will trade its R&D aspirations to flog the tartan tin culture right here on our decreasingly ‘dreich’ doorstep (it’s a global warming thing). SCOFF, I did. Until I read Scotland’s Tourism Framework for Change (STFC), the Executive’s strategy to establish Scotland as Europe’s most sustainable tourism destination by 2015. Angus, I am not worthy! But tourist clambering to Scotland’s sunny sandy beaches in August? Reminds me of that Rab C Nesbitt episode…you know the one…

Monetising Individualism

Buffett’s Tech Buffet

It’s a generation so intent on recognising and keeping up with change that they’re forgetting how to really create it.

After a career of avoiding tech sector investment, the ‘Oracle of Omaha’ has dropped a reported $10bn on IBM stock. And in typical Buffett style no one, not even IBM, were the wiser it was happening over the last two quarters. So why the sudden and spectacular change of tune that saw the Berkshire Hathaway chief executive bring his stake in the business up to 5.5% over the last eight months, making him the largest shareholder in the company? Eschewing his long-time assertion that his disinterest in technology is driven by a lack of understanding, Buffett claimed he was ‘struck by IBM’s ability to retain corporate clients’. It’s a thin explanation, anorexic in fact. So what does the most prolific investor on the planet know about IBM? The Brunette, she who must be obeyed, suggests when something doesn’t make sense, there’s always a reason. And it’s hard to ramp up any argument to counter that thought. Mr Buffett has also, following his annual letter to investors, bought chemicals company Lubrizol and invested $5 billion in Bank of America Corp. He managed to talk himself out of investing in the Eurozone banking community. Arceri’s World: On Enje Neurs and

Mark Zuckerberg is, for some reason, the entrepreneurial Brad Pitt of people in their twenties. It’s a dwindling equation of perception versus reality, becoming reality through perception and now everyone is extremely interested in the next app, Microsoft/Google platform.

But on the trail to Silicon Valley the Gen X, or Millennial Child or Bono’s Babies have managed to blur the line between what constitutes a consumer and what a creator, a marketing person and a designer, an entrepreneur and an investor. When we blur we eliminate boundaries and that, in this context, is no bad thing. We/they, us/them are starting to think in a multi-disciplinary way. So what’s missing, other than investable money in piles large enough to cope with the swell of ideas? If you take a moment, or a fair bit longer than that, and have a read through the seven VC’s in America and their respective blogs, you’ll find more dialogue and real information than you could get from a full computer science degree. It’s the capacity for us to take in the right information, including possibly ignoring or avoiding certain curriculums that point toward barrier destruction.

It’s a generation so intent on recognising and keeping up with change that they’re forgetting how to really create it. don’t by any stretch mean simply blogosmosis. We’ve already got enough of that. We’ve got Zuckerberg-ites, Gates-ians all mashably interacting on a plethora of social media platforms that swell and retract like Kirstie Alley’s waistline. Sorry Kirstie, you’re my ideal woman. We don’t need more cloning. We need innovation and an investor evolution. Look around at places like Tel Aviv, Germany, it’s a different story; you can’t tell an entrepreneur from an investor – there entrepreneurs become investors become role models. We need to build the model for a minimum viable entrepreneur, the killer application, based on a specific Silicon Valley investment model that’s been marinating for 40-years. Make no mistake, the Internet is the place. It is going to impact every aspect of culture, every industry – it’s a mere catalyst tool at present disrupting every area of our lives. It will move into a more Kafka-esque “everyone knows what you’re doing” scenario very very soon.

The class of ‘the new education’ needs

The ‘Enje Neurs’ or engineers (ingenious creator) will be those who begin to dismantle and control an IT world that has formed a fortress around itself.

birthing here, in the cradle of invention that is Scotland, sorry the UK. And I

And individualism will be the pay cheque.

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