True resilience?: how businesses survive for centuries

Britain's Oldest Family Businesses - RJ Balson & Sons, Bridport, Dorset

I’ve been working on two parallel projects recently, both of which examine the resilience of smaller businesses.  “Hidden Histories: Britain’s Oldest Family Businesses” is a new series for BBC Four television and The Open University, produced by Chris Durlacher and Rebecca Templar of Raw TV.  The programmes are compelling and it’s been fascinating to hear how the owners of these three featured businesses have navigated numerous crises, both ‘internal’ and ‘external’, and somehow managed to keep themselves going over several centuries.  Of course, three hundred year old family firms are exceptional cases – most small businesses fail very quickly and only a small minority survive more that a few decades – so you might see them as too exotic to be of much relevance to the rest of us.  However, we’re also researching a similar topic for the current issue of the Quarterly Survey of Small Business in Britain, asking our respondents about their experiences of resilience and recovery over a shorter time-frame. So what can we learn from these different experiences?  The survey will be out shortly, but in writing up our main findings, I’ve been struck by three key themes:

1. While unsurprisingly, the ‘credit crunch’ and subsequent economic uncertainty is the most highly-rated ‘real threat’ experienced by small and medium-sized firms, more than a quarter refer to extreme weather conditions as affecting their businesses in this way.  The comments paint a painful picture of businesses damaged by floods, storms and heavy snowfall over recent years.

2.  It’s easy for the realities to get hidden in the statistics – some of the stories of particular firms are really sobering, with owners and managers having to deal with multiple crises simultaneously, including bad weather, economic uncertainties and the sudden failure of major customers.

3. We should be spending a lot more time thinking about resilience.  The widespread obsession with high levels of growth tends to obscure the real issues for business owners and managers, where growth may be one ambition amongst others, but the main thing is to keep on going through both good times and bad – and that deserves a lot more recognition (and respect) from political leaders, media commentators – and the rest of us.

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The Autumn Statement returns: but are SMEs really ready for the recovery?

Small and medium-sized businesses have had to navigate incredibly demanding and often hostile and unpredictable markets over the last few years. And as was the case for UK households, some have had it far worse than others. So, with George Osborne’s Autumn Statement expected to trumpet signs of a fairly dramatic upturn in the economy, it’s a good time to turn our attention to the current state of Britain’s smaller businesses. How well have they survived the economic crisis – and other extreme events – over the last five years? And are they in a good position to respond to improving conditions in their respective markets?

We’re conducting research on these issues for the next Quarterly Survey of Small Business in Britain. One interesting early finding is around the level of investment in equipment and technology, a useful indicator of the current state of a business, as well as its future prospects. The responses to this question suggest that almost half of businesses (45%) consider themselves fully-prepared for the next few years, while many of the others (20%) think they already have the necessary investment plans in place. Of the remainder, the majority (24%) seem to have retained their growth ambitions but are timing their investments cautiously. This leaves around one in ten respondents (10%) who do not have the equipment and technology they need. The businesses in this group are split fairly equally between those who have decided against making any investments and others who would like to invest but – for a variety of reasons – are unable to do so.

We also asked business owners and managers to explain the reasons for their responses. Looking at those who have decided not to make the investments needed for future resilience and growth, the explanations seem to focus around lack of resources and continuing uncertainty over the economy:

“We cannot afford to make any investment at this time but look towards making those investments during the second part of 2014.”

“We would like to invest in new equipment but do not feel the market is stable enough, nor the demand yet sufficient to take on debt to finance the purchases.”

“Boring old cash flow.”

Those businesses with an intention to make new investments in the near future seem to have very specific capital expenditures in mind:

“We have started our investment plan, acquiring new high tech automated plant, with a view to new additions early next year.”

“[We are] putting into place automated systems to reduce work load and so allow efforts in more constructive areas.”

“[We] will need larger refrigerated storage and a stock management system.”

And lastly, one of the striking features of the businesses that already have all the equipment and technology they need it that their investment plans seem to be part of a longer-term perspective on the business – both in terms of their aims and on what is needed to realise them:

“Careful and continuous investment over 10 years in our infrastructure.”

“We have continually invested in new kit and therefore our fleet of equipment is modern, efficient and adequate for the business.”

“We have invested heavily in our infrastructure which is now capable of supporting a significantly larger business.”

“We have invested heavily in plant and IT over last 5 years and now have a state of the art manufacturing facility.”

“Our business continues to re-invent itself and we have the finance and the personnel to make it happen.”

So, in conclusion, there do appear to be some grounds for optimism, based on this early result from the Quarterly Survey. It suggests that almost half of Britain’s smaller businesses have continued to invest through the downturn, and that many more have concrete plans to do so in the near future. However, there are also some grounds for concern, as a significant minority are either unwilling or unable to make the investments they need in order to remain resilient, or to grow their businesses over the next few years.

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A note on the research: This is an early, provisional finding from a research study on SMEs, which focuses on the topic of organisational resilience and recovery. The Quarterly Survey of Small Business in Britain, Quarter 4 2012 report, “Resilience and Recovery”, will be published in January 2014 (www.open.ac.uk/quarterly-survey). The data presented here is based on a sub-sample of 475 responses to an online questionnaire, which was made available on The Open University website during October and November 2013. This sub-sample is not necessarily representative of UK SMEs by size or sector.  The wording of the featured question was: “Do you think your business has the equipment and technology needed to be resilient and / or to support your growth targets over the next three years?”; the five options were followed by an open question that asked respondents to explain the reasons for their response. The full report will include a more detailed analysis of this question and a number of other questions that incorporates data from a larger structured sample obtained through telephone interviews. The survey has been supported by the following corporate sponsors: ACCA (the Association of Chartered Certified Accountants), Barclays Business, the Finance and Leasing Association (FLA) and The Open University Business School. However, the research is editorially independent and any views expressed may not reflect those of sponsoring organisations.

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What sort of growth do we really need?

David Siu - Creative Commons

I recently took part in a short online debate about growth, responding to a piece by Rita Klapper and Paul Upham (the full debate can be found here). These are my thoughts, which can be read as a stand-alone piece though they respond to Rita and Paul’s interesting essay and, in particular, their concluding proposition that ‘growth’ is not something we should take at face value.

Why is growth such a problematic concept? After all, economists, politicians and business people talk about it all the time. To begin with, it’s because (despite appearances to the contrary) we really do lack an adequate vocabulary to tackle a phenomenon that’s so elusive, multi-layered, paradoxical and all-pervasive. Tim Jackson highlighted a good example in his (2011) study, Prosperity Without Growth: Economics for a Finite Planet. The French have at least got a term for slowing things down (‘decroissance’), whereas those working in English have to make to with the clumsy improvisation, ‘de-growth’ (OK, there’s ‘downsizing’ and ‘downshifting’, but the point still stands). Furthermore, the few words that we have at our disposal are shackled to, and frequently undermined by, misleading metaphors.

The images available – biological archetypes of growing organisms (like baby elephants) and evolutionary pathways – are particularly potent and need careful handling. Researchers have an important role to play here, challenging cruder examples of determinism and applying strong pinches of salt where necessary. But that’s not going to be enough. The destructive manifestations of economic growth that overshadow us today are a product of deeply-rooted cultural factors (with the possible exception of Rita’s collectively-minded Finns), underpinned by increasingly globalised economic and financial institutions. Fritz Schumacher’s inspirational (1973) Small is Beautiful: Economics as if People Mattered left one key question unanswered: how you deal with the dynamics? I’m not sure we’re much closer to understanding, for example, how today’s visionary start-up can avoid becoming tomorrow’s destructive corporation; issues like this should be at the heart of our research agenda. In his review of Jackson’s book, the solar energy entrepreneur Jeremy Leggett writes:

‘And for what it’s worth, as a creature of capitalism – a venture-capital-backed energy ­industry boss, a private equity investor, and an Institute of Directors director of the month – I am convinced that capitalism as we know it is torpedoing our prosperity, killing our economies and threatening our children with an unlivable world.’

Leggett thinks Jackson is good at, ‘showing the generalities of the escape route’, but there’s still plenty for the rest of us to tackle when it comes down to the details. Having said that, there are some great examples of experiments in alternative approaches to growth. For example, I recently attended a local entrepreneurs forum in Totnes (the Transition Town that has become known for its successful campaign against a Costa coffee outlet). As well as having a chance to mix with some really inspiring people, we heard about their local economic blueprint, part of a national pilot that is developing interesting new ways to conduct economic evaluation.

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Does Britain need a Business Bank?

'Bank' by Caren Parmelee ‘Bank’ by Caren Parmelee

There’s now a lot of talk about some kind of new business bank, with Vince Cable’s announcement this week reinforcing the Chancellor’s comments in a BBC interview at the weekend while arguably going some way beyond. Some commentators, including Anthony Hilton, are sceptical, and it will be interesting to see what SME owners and managers make of the idea – it’s also something we hope to be exploring shortly in the Quarterly Survey of Small Business in Britain. Clearly, businesses have diverse financing requirements, so while economists have frequently pointed to fairly compelling evidence that market imperfections may act as a constraint on ‘growth’ for some firms, it’s also the case that financing growth strategies is not on the radar for the vast majority. This is a highly contentious and technically complex issue, and unpicking the underlying causal factors is far from simple. However, it’s also interesting to see something like a consensus emerging, with a variety of actors, including the British Chambers of Commerce and the Labour Party publishing studies that make the case for some kind of Business Bank. Watch this space!

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Does the public ‘get’ social enterprise?

David Floyd of the ‘Beanbags and Bullsh!t’ blog has just interviewed June O’Sullivan, CEO of the UK’s biggest childcare social enterprise, LEYF. Floyd’s interview raises a number of challenging questions about the kinds of business models that are now being developed in order to deliver social impact in key areas such as childcare. This is a field that is full of strongly-held views and powerful vested interests, but you get a strong sense that LEYF is navigating its way towards a more balanced and streetwise approach to growing social ventures. For example, they seem to be recognising the vital importance of its historical heritage and core values (not just ‘window dressing’), while also taking some fairly radical steps to reconfigure the organisation’s underlying business model.

Another important issue raised by June O’Sullivan is what she perceives as a lack of public awareness of social enterprise, despite the best efforts of organisations such as Social Enterprise UK. If she’s right, we’re entering uncharted, and potentially dangerous waters. Dangerous because, without a well-informed public and a very well-constructed governance structure, there’s a real prospect of seeing vast swathes of the social sector marketplace becoming the preserve of larger and less scrupulous commercial players.

Fergus Lyon and Heather Fernandez have done some work on the growth of LEYF for the Third Sector Research Centre. I’ve also been working with Fergus in a study that examines LEYF as part of our attempt to take a more historical perspective on the growth of social ventures, presented recently at the Skoll SE Colloquium.

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Personal carbon trading – the entrepreneurial connection

Personal carbon trading is back on the agenda and there are some interesting questions to ask about the way that a PCT-based regulatory system would feed through into entrepreneurial activity. A British politician, Tim Yeo MP, chair of the cross-party Energy and Climate Change Committee, has called for the launch of a pilot personal carbon allowance (PCA) trading scheme, funded by the private sector and possibly the EU.

There’s plenty of evidence that regulation can drive significant market transformation and the sheer scale and scope of national/international PCTs is also likely to open up all kinds of new productive opportunities as individuals and communities seek out innovative ways of reducing their own carbon footprints. There are also lots of questions for researchers and policy-makers regarding the design and implementation of such a scheme. I’ve had a long-term interest in PCAs, sometimes referred to as ‘personal carbon rationing’, and have heard (via a certain close relative) all of the many arguments for and against. However, from my own reserach perspective, some of the most interesting issues concern the kinds of social and commercial entrepreneurship that would be engendered by this kind of intervention. The nature and scale of the response would be critical to the success of any scheme, because it would have a direct impact on the ‘feasibility’ of achieving particular carbon limits, and the rate at which those limits could be lowered. If the bar is set to low, the baby will not thrive. If the spur towards radical or disruptive innovation is insufficient, new entrants will find it harder to enter while the usual suspects will devise ingeniously unproductive ways of milking the system without making changing their existing practice (sound familiar?). If it’s set too high, the politicians will find it impossible to ‘sell’ and the level of resistance will strangle it at birth. However, if they get it right – with a gentle entry level combined with a clear and unambiguous downward trajectory thereafter – the entrepreneurial start-ups, the powerful incumbents and all the rest of us will be in for a really interesting ride.

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Eight billion chips can’t be wrong …

I recently interviewed Warren East, CEO of the Cambridge-based microprocessor designer ARM Holdings, as part of the BBC/OU co-production, The Bottom Line. ARM has an unusual business model, based around a web of collaborative partnerships with over 300 firms. It’s excellence in engineering design is reflected in the fact that almost 8 billion ARM-designed chips were shipped last year. That’s a staggering number by any measure, and it is reflected in some other startling statistics. For example, more than 95% of the world’s mobile phones contain chips that were designed by this British company.

Warren East spoke eloquently about ARM’s growth and development over the last two decades, highlighting some of its distinctive features and capabilities. We also talked about the environmental sustainability issues associated with the global information and computing technology industries. Clearly, any activity that results in the creation of 8 billion processors, however tiny they might be individually, is going to have a significant impact on the natural world – there are issues around resource extraction, energy use in production and consumption, and associated environmental pollution. The counter-argument revolves around the way in which these materials are used, and in the positive contribution they can make in economic, social and environmental terms. It is also very easy to lose sight of the human ingenuity at work here – the people who slave away to design and manufacture chips that can run electric motors far more efficiently, reduce the power consumption of servers by up to 75%, or help us to make ‘smarter’ use of energy in our homes and workplaces. Of course, such efficiency improvements can often be trumped by increases in volume or throughput – think air travel, for example. They do not, in themselves, remove the imperative for operating within natural constraints, and for mitigating the damage that we continue to inflict on our fragile eco-systems. However, it is also heartening to see just how ingenious our fellow human beings can be, and to acknowledge some dramatic technological innovations that are often taken for granted.

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Why invest in start-up ventures?

This week, I got the opportunity to interview entrepreneur and investor Richard Farleigh on his experiences of investing in start-ups and early stage ventures. The interview followed a recording of the BBC’s ‘Bottom Line’ programme, which is presented by Evan Davis. It is one of a series of interviews being produced by colleagues at the Open University in collaboration with the BBC. In this interview, Richard Farleigh provides some interesting insights for prospective entrepreneurs from an investor’s perspective.

http://www.open.edu/openlearn/money-management/management/business-studies/why-invest-startup-businesses

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Where next for sustainable enterprise: time for Bolton Mk2?

Managerial folklore has it that, ‘if you can’t measure it, you can’t manage it’. As everyone knows, almost all businesses are small. However, one of the most striking things about the environmental impact of smaller organisations, is that there aren’t really any consistent and reliable measures. This glaring gap in our knowledge is evident in recent a European research study. It grapples heroically with the issue, generating a striking claim – that SMEs contribute roughly 64% to the industrial pollution in Europe – but the report also leaves many questions unanswered. Research conducted as part of our own Quarterly Survey of Small Business in Britain found less than one in three small businesses reporting any spending on their environmental impact over the last year, with 12% of small firms measuring their carbon footprint (a proportion that increased to 22% for those with 20 or more employees). But again, these are no more than isolated snapshots, which leave the inherent complexity and dynamism of the situation largely unexplored.

There are many good reasons for the lack of data, including the sheer heterogeneity of small firm population, differences in reporting requirements, and the fact that many smaller firms have far more limited resources than their larger counterparts – not to mention their day-to-day struggle to survive these recessionary times. However, the end result is that we are left with a yawning gap in our understanding. And it’s one that really does need to be filled. Without better information, it is hard to see how countries like the UK stand a realistic chance of delivering on their sustainability targets, not least of these being carbon reduction.

As little as forty years ago, policy makers in the UK woke up to the economic importance of small firms, having got into something of a fluster about an apparent decline in numbers, and started taking them more seriously (The Bolton Committee Report, 1971). In the wake of Bolton, there was a major expansion in small firms and entrepreneurship research. And as a result of all this effort, we now have much more reliable datasets on small business. These cover a variety of economic variables: business start-ups and closures, sectoral and regional trends in sales, profitability and investment, and much more besides. It’s a picture that contrasts sharply with our current state of knowledge about the environmental impact and performance of smaller firms. Of course, there’s plenty of public, private and voluntary sector activity in this arena, with each week bringing new initiatives that range from waste recycling and carbon foot printing. But how do we know if it’s actually working? There are many open questions. For example, are we better off encouraging smaller (and more local) models of enterprise, or are there some occasions when large is more beautiful – at least in environmental terms? It is difficult to see how governments, entrepreneurs and communities can make informed judgements about questions of this kind, unless we engage in a more concerted effort to measure the environmental impacts of SMEs, and to track longer-term outcomes. So are we – in some senses – back in 1971? Should our politicians be commissioning a 21st century equivalent of the Bolton Committee, but equipped this time with a more wide-ranging environmental brief?

This is one of the questions we’ll be considering at a workshop to be held at the Open University in a couple of weeks’ time. Of course, attempting to tackle a field as large as ‘environmentally sustainable enterprise’ is always going to be something of a challenge. I have been airing some thoughts on one small small corner of that field – how should we measure the environmental impact of smaller businesses? – and would welcome your comments.

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ISBE’s Social, Environmental and Ethical Enterprise track

Entrepreneurship has always had a strong ethical dimension. From the earliest times, there was a recognition that the responsibilities of farmers and business owners extend beyond that of securing immediate benefits for themselves and their families. Over the centuries, a variety of rules, norms and practices were developed that sought to reduce the harmful effects of entrepreneurial activity, and to promote positive outcomes. However, it seems to have been only in the last few decades that ethics and responsibility have become integrated into the mainstream entrepreneurship research agenda. In doing so, the agenda has broadened, raising some important new questions. From an ethical perspective, as George Brenkert (2002: 33) points out, ‘entrepreneurship is not simply about how one creates a business or the workings of the economy. It is far more about how we organise today’s society.’

I thought I’d begin my blog by telling you about the ISBE SEE conference track (www.isbe.org.uk). It is one small attempt to respond to this broader agenda and to connect it with mainstream entrepreneurship research, policy and practice. We received a record number of quality papers for last year’s conference and our 2011 submissions are looking to build on that. The SEE track is divided into three main sub-themes:

• Social and community enterprise and entrepreneurship
• Sustainable entrepreneurship and environmental impacts of enterprise
• Ethics, enterprise and social responsibility

Many of the issues addressed under these sub-themes are attracting increasing attention from policy-makers, practitioners and the wider population. For example, we are particularly interested in the ways that entrepreneurial activity contributes to current social and environmental problems, and how such energies might be redirected towards more socially and environmentally benign purposes. This has direct implications for public policies on climate change mitigation, including efforts to promote a ‘low carbon’ economy. The ‘environmental’ sub-theme is concerned with the pursuit of environmentally-responsible opportunities by mainstream enterprises, the creation of self-consciously ‘eco-preneurial’ ventures, and more radical models that challenge prevailing assumptions about enterprise and growth. Our ‘social’ sub-theme addresses contemporary issues in social and community enterprise, including the tension between maintaining core social aims and continuing to prosper in a highly competitive and turbulent marketplace. Ethics is another important sub-theme. Current topics in this area include the growth of ethical markets and the opportunities these can create in terms of providing services for disadvantaged groups or in facilitating markets in fairly-traded goods and services.


Micro enterprise manufacturing fuel-efficient ‘Gyapa’ stoves in Ashaiman, Ghana

So what is the future for the SEE track? Having reviewed our sub-themes, it might be reasonable to ask whether we are simply replicating the work of the business ethics and Corporate Social Responsibility (CSR) tracks that are found at most management conferences and in those of functional specialisms such as marketing and accounting. However, while there are some obvious overlaps, the distinctive feature of this track is its focus on the entrepreneurial dimensions of responsibility. In other words, we are much more interested in how organisations seek to pursue new ‘social’ and ‘environmental’ opportunities, rather than in how they manage existing operations. One of the major challenges for the track, and for the emerging field that it represents, is in developing a more coherent and integrated perspective on the complex and often contentious issues that it addresses. We also need more empirical work, including more reliable indicators of social and environmental performance and more in-depth case studies to explore the underlying mechanisms. I hope you may be able to join us, either by attending the track in Sheffield this autumn or by getting in touch directly as we seek to build a stronger research community.

You might also be interested in an event that we are running at the Open University on 20th September, What next for sustainable enterprise?: policy and research perspectives. Full details can be found here:

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