Ownership strategies - Entrepeneurs born or made?

Entrepreneurs are highly motivated, passionate individuals that are prepared to take risks and accept a lack of control. While entrepreneurs and chief executive officers share a number of core skills, including being strong communicators, energetic, visionary, flexible, decisive and intuitive, two perceptions of a successful CEO - being in control and avoiding risks - are in stark contrast to those of an entrepreneur.

A recent international survey commissioned by McKinney Rogers and conducted among CEOs and business executives of some of the world's largest organisations, showed that characteristics traditionally attributed to entrepreneurs have not changed significantly but are surfacing in the next generation of board-level employees or board level leaders. Organisations demand greater innovation, creativity, flexibility and risk taking due to the demand of the global market, where only fast moving businesses are seizing opportunities.

The survey revealed that 69% of respondents believe it is important for large organisations to develop a core competence for entrepreneurship. The availability of entrepreneurship is also prevalent in modern industries such as technology, where the pace of change necessitates a more maverick, flexible and innovative approach to business. The results also showed the next generation of business leaders believe that there will be a blurring of lines between successful CEOs and entrepreneurs in the future. Some 66% of managers questioned believed anyone could be made into an entrepreneur. board level employees sided more with the nature side of the debate, with 55% claiming entrepreneurship is something you are born with.

These results highlight clearly a real understanding across different industries that entrepreneurship has an increasingly important part to play in driving a successful business. A management team that leads by example and takes risks themselves is vital when working towards an entrepreneurial business environment. When a manager explains the 'what' and 'why' behind a project or task but gives their team the freedom to carry out the 'how', it creates a sense of empowerment and encourages employees to take ownership of their work.

Business leaders need to understand that this is not about recruiting a number of entrepreneurs and hoping that they will make changes while expecting them to mould to the current culture: rather, it is to identify and nurture entrepreneurial qualities in existing employees by encouraging ownership and creating a culture that supports some of the innovation, risk-taking and flexibility that is associated with entrepreneurs.

WHAT DARLING'S BUDGET MEANS FOR ENTREPRENEURS

The Budget, announced on 12 March 2008, had some attractive incentives for entrepreneurs in Britain, particularly for women. Chancellor Alistair Darling has pledged £12.5m to a new capital fund designed to redress the current gender imbalance and encourage female entrepreneurs while the same amount will be provided by venture capital. As part of the scheme, mothers will be targeted with offers of advice on how to prepare business plans, run a firm, and pitch for investment. At present, just 585,000 of the UK's 4.5m enterprises are run by women.

The government will also provide another £60m in funds for the Small Firms Loan Guarantee Scheme, which will be extended to all small and medium-sized companies. Under the scheme, smaller, ambitious companies will be given greater assistance to win government contracts. Darling said he wanted 30% of smaller businesses to be winning government contracts within the next five years.

Elsewhere, under the Enterprise Investment Scheme, investors will be able to claim £500,000 annual income tax relief from April 2008, up from £400,000. One of the most attractive incentives for this sort of investment, instead of a venture capital trust for example, is that EIS investors can defer the capital gains tax liability of previous gains, allowing entrepreneurs to roll all of their gains together and use their personal allowance each year to shrink the amount payable to the taxman.

The employee share limit is also being raised from £100,000 to £120,000 per employee under the Enterprise Management Incentive Scheme. However, thanks to the changes in capital gains tax, some employees may be worse off when they come to sell the shares, falling victim to 18% tax instead of the pre-April 2008 rate of 10%. The 18% rate will not apply to the first £1m worth of gains after the Treasury's mini u-turn on CGT, labelled Entrepreneurs' Relief.

Meanwhile, husband-and-wife firms that split the income generated from their businesses in order to reduce their joint tax bills will not be stopped until next year. Previous speeches by the Chancellor had hinted at a concentrated effort on such firms, however the Treasury has now said that, while it believes firmly that allowing individuals to shift part of their income to another person on a lower rate of tax was "unfair", it needed to rethink how it would tackle the problem as the current draft legislation was unworkable.

STUART REID: 'CHOSE' ENTREPRENEURSHIP

For me it was a conscious choice to become an entrepreneur hence my decision not to go to university in favour of making my own way instead. I am fiercely independent and wanted to make my own mistakes and follow my own path.

Although I have a strong innate sense of independence there were guiding influences such as my father who was also an entrepreneur.

In terms of other influences Alex Shead with whom I co-founded Stuart Alexander was a huge one. Influential events such as moving to the city were a big challenge that reinforced my own determination. To see that others were just as insecure and uncertain as us added to our confidence.

In terms of whether entrepreneurs are born or made I think I would have become an entrepreneur regardless. So while there were definite guiding influences that drew out my entrepreneurial nature there had to be something there to be drawn out in the first place. Without wishing to sit on the fence, I believe there are genuinely elements of both – that there must be something inherent in an individual that is prompted or refined by circumstances.

It’s fair to say entrepreneurs are often driven by the desire to prove something. I still have a letter from my optician to my school which reads ‘we cannot find any fault or defect with Stuart’s eyes whatsoever. Perhaps the school should consider the possibility that Stuart isn’t very bright.’

It would be impossible to comment for every entrepreneur but for me it was about having an unwavering determination and a set of governing principles to live by. These include integrity, honesty, fairness but also arrogance, being prepared to take risks and having the courage of my own convictions.

It goes without saying having first class staff is essential to achieve success and I have been extremely fortunate in that respect.

But there’s no magic potion in becoming an entrepreneur. Call it arrogance; call it determination, inner strength, drive or whatever, in essence I simply believed that I could do it better than others. I worked hard to establish that this instinct and belief had substance and was well founded.

- Stuart Reid is chief executive at Venture Preference

PETER CULLUM: THE QUALITIES OF THE ENTREPRENEUR

In ten years, Peter Cullum has made Towergate Partnership one of the World’s largest independent insurance intermediaries and to a size equivalent of a FTSE 100 company. He talks here about some of the qualities that made this happen.

Passion. Energy. Vision. Commitment. Those are the qualities that most entrepreneurs reel off when asked to define themselves... and vital ingredients they all are. But I’d add another: execution skills. You be unwise, after all, to allow a surgeon to operate on you on the basis of mere passion and commitment.

My emphasis on skill and execution probably stems from the fact that I was certainly not a born entrepreneur. Rather you could say entrepreneurship was thrust upon me. I began with a very traditional training: MBA, graduate trainee, main board of ITT London & Edinburgh, where I gained those strategic planning skills.

Then everything changed. I was head hunted to lead a small insurance company called Economic Insurance which led ultimately to an MBO and my first sortie into the world of private equity. That was the life-changing moment. After we sold Economic to Hiscox, I was probably unemployable in my own eyes – an owner-driver, but temporarily without a car! And that, in a nutshell, is how I became an entrepreneur and Towergate began – with three people sitting on orange boxes in Hornchurch.

Long before the birth of Towergate I believed that there were 3 critical components to a successful business strategy; they were Distribution, Distribution and Distribution! Some of my underwriting colleagues have politely disagreed with me over the years advocating the supremacy of underwriting and the truth probably lies somewhere in between. Yet at the end of the day you cannot underwrite unless the risk is presented to you. Towergate is underpinned by that simple fact. Distribution becomes the critical component.

Since then we have made around 150 acquisitions in ten years and I have become a serial entrepreneur. From the start there was no better feeling than the adrenaline rush that came with a successful, high quality deal, particularly given that one of the most important criteria for me was to like the people who ran the businesses we acquired (I think it’s crucial to be on the same page as those you’re going to work with, empathy & chemistry).

Of course, one of the key lessons for any observer of modern business is the speed of change and it is vital to carry out a reinvention review at least every 3 years. Towergate is definitely not the company it was 3 years ago, and it will be very different in 3 years’ time. Opportunities (or challenges) do not come in convenient time parcels – the window opens fleetingly and if you do not have the means to get through at that moment then the opportunity is lost. Speed of action is critical to me.

Deals are about risk and, of course, we’ve made mistakes – fortunately none of them fatal. But I believe there’s no learning without mistakes. That’s why Steve Jobs is one of my heroes. He epitomises those qualities that turn knowledge into action – the ‘learning-doing gap’ (a fine and important book ” by Jeffrey Pfeffer) they call it. And I’m sure he too would tell you too that execution skills are essential to an entrepreneur.

Paul Dyer and Brian Thomas’ management book “Panic, Passion and Power” which draws heavily on the Towergate experience makes one other critical point. Towergate’s survival let alone success, was never guaranteed. Sometimes it takes sheer bloody mindedness to keep going!

You can mitigate business risk but you cannot eliminate it.

- Peter Cullum is executive chairman at Towergate

Ownership strategies - The leader within

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