| Sinclair Speech |
Clive Sinclair gave his views to the London Business School on how to start a business even when the times do not appear perfect
THE CLIVE SINCLAIR secret of business success is innovation. He said so during a recent talk at the London Business School.
The large multi-nationals, he said, are already involved in almost every field and it is necessary for a new venture to innovate. That may be through inventing a new product; finding a new method of marketing - as an example, 20 years ago Sinclair Radionics began selling electronic equipment by mail order, until which time it had been done by shops; the innovation may be in management techniques applied by the company, or it may be in the application of new levels of efficiency either in cost of production or in profit on sales. To succeed, the new entrepreneur must think of what the future looks like and decide which direction to go.
Sinclair thought that the rate at which the world is changing has been relatively smooth for many years but that rate of change is becoming increasingly rapid. In particular, patterns of employment are changing. Traditionally the pattern of employment of large companies has been a gradual increase in the number of employees.
That approach is no longer viable. The time that it takes to co-ordinate huge numbers of employees ensures that large companies are always technologically behind smaller, more flexible companies and therefore less efficient. Large companies are now shedding employees. The rate at which they are shedding is increasing and it is an irreversible trend. The pattern will not change with the ending of the world recession.
Employment is based increasingly on a small team of specialists getting together, to work for a limited time on a specific project. A television producer, for instance, will sub-contract to various specialists - camera operators, script writers and the like. Those specialists work on a self-employed basis. It gives the employer more flexibility in the design and marketing of new products. That method of production provides an advantage to small new companies.
There is also rapid change in the way things are sold. Sales are aimed increasingly at world rather than home markets. Vast production runs for world-wide markets enable a company selling internationally to sell much more cheaply than could a local producer. That trend to world markets is irreversible unless the major economic powers set up trade and tariff barriers.
Sinclair added that the time is right to start a new business. Many economic observers think that the world has bottomed-out of its slump and that we are returning slowly to boom times. Even if one takes the opposite view there are good reasons for those with new ideas to start businesses now.
The Russian economist N D Kondratieff suggested that trade and production follows 50-year cycles. The first 20 years are a period of new inventions. During that time society struggles to produce the new inventions in sufficient quantities to meet the demand for them. That is a boom period. After that there is much lower demand, covering replacement as the goods wear out. Firms producing the new products go into fierce competition. There is a slump period, which lasts until another period of invention begins.
In the last 20 years there has been a surge of invention and technological change so this could be a good time to start a new business. The new areas such as bio-technology and computers will thrive. The newest inventions in those areas have been 10 to 15 years in development before they reach mass markets. There are opportunities in those areas for new ventures.
A depression is a good time to start, even in those areas which have already been developed. Suppliers to those industries have become highly competitive. They use massive economics of scale and small profit margins. They are always looking for new customers.
An entrepreneur who can provide new custom will be supported by those suppliers - e.g., Sinclair has increased the output of Timex and has taken full advantage of Timex economics of scale in electronic manufacturing. During a depression, the new venture enjoys similar benefits from retailers. The retailers' sales of traditional products are declining and he is looking for new products to attract more customers.
In the next few years certain industries are set to boom. Among them are health, education, leisure, bio-technology and electronics. Transport, too, is due for a boom. That may seem surprising but the basic form of the motor car has not changed since the beginning of the century. There have been tremendous refinements but the form of internal combustion engine mounted on a steerable carriage has not changed. Whoever detects the next form will be a winner.
Two industries particularly stand out as potential growth areas - power generation and leisure travel. There is an enormous range of new ways of generating power which have been developed recently. For the most part we still rely, on methods of generating power invented in the 19th century. The introduction of computers and automated manufacture will result in increased leisure travel, in the same way that the first industrial revolution led to greater leisure travel.
Sinclair also had advice on where the budding entrepreneur should seek backing. There are several Government schemes to finance new products but the greatest Government boons to new enterprises are the various tax exemption schemes.
Start-up capital can be exempt from taxation for up to three years. A company with a new product may start a separate company to launch the new product. The new company will be exempt from tax on capital for another three years. A very attractive aspect of that scheme is that it can be retroactive, allowing the new venture to save the money it pays in taxes, which may then be invested for further development.
Venture capital is a relatively new form of funding new businesses. It is an idea which has been operating in the U.S. for some time and is starting to become increasingly important in the U.K. Venture capital companies differ from the more traditional lenders, such as the banks, in that they offer help to the new venture in many ways. They will often provide experienced accountants and advice on management. That can be particularly helpful to an entrepreneur with no commercial background.
Despite the current volume of its daily trading, the Stock Exchange is no longer a practical way to raise money for a new project. A listing on the Stock Exchange requires time and a great deal of money. It tends to deal in the shares of large, well-established companies. The Unlisted Securities Market is faster and cheaper than the Stock Exchange. The Unlisted Securities Market is more risky for investors but the potential for profit is greater.