The rise in the number of UK entrepreneurs is exciting and encouraging – home-grown innovation is alive and well.
Over the past 20 years, there’s been a 69% growth in new British businesses. Whilst the business death rate has remained consistent.
This focus on creating new products and serving new markets is encouraging for the economy. So how can we sustain this growth? Governments, corporates, service providers, consumers and society all have a part to play in supporting growth businesses.
For this new series we consider the ecosystem that supports UK business and explore how different stakeholders can influence their future. Here we look at consumers and society, and their role in business growth.
Consumers lead the way
Millennial consumers are increasingly discerning and knowledgeable about the companies they are dealing with. They want to understand or feel a connection with their purpose. Consumers want to spend with companies that have an impact, a purpose or a true reason for being. Key questions they will be asking themselves before engaging with your business:
Why is this business in existence?
What is the purpose of this business?
Is it just serving the latest unsustainable trend?
Are there long-lasting brand values behind this company?
So what does this shift in consumer attitude mean for entrepreneurs? As well as a focus on purpose and social impact, consumers want to feel empowered about their decision making. They are surrounded by information and choice, but does a product truly offer something different? Or is it in fact just a shinier label or fancy new website?
Reading the consumer mind
This poses real challenges for businesses. There is an imperative to stay close to and understand customer reactions to your messages and products. As a new business, you need to monitor feedback from consumers constantly to ensure you’re developing a proposition that really satisfies a need. The most interactive and educated consumers are better for your business in the long run.
Koru Kids, a startup that has raised over £10 million to build the best childcare service in the world applies an interesting approach to taking consumer feedback onboard. Rachel Carrell, founder of Koru Kids, applies her scientific background to really test, iterate and repeat. Yet this relentless focus on the customer can be difficult for both big and small businesses: small businesses have limited resources to spend all their time with customers and need to focus on building products, but are nimble enough to adapt more quickly to feedback. Larger companies have the benefit of resource, but often take longer to respond to customer feedback due to internal structures, and are less adaptable.
Business with purpose
New entrepreneurs are also examining how they run their businesses. There is an increasing focus on the role of business and its purpose. We’re now seeing a new corporate direction shaped by purpose or impact, which is a marked divergence from the traditional approach to doing business.
A core success factor is no longer simply making profits. It’s highly likely that value creation and societal impact will also lie at the heart of many new businesses.
As Blackrock’s Larry Fink explains in his 2020 Letter to CEOs:
“[A] company’s prospects for growth are inextricable from its ability to operate sustainably…a strong sense of purpose and a commitment to stakeholders helps a company connect more deeply to its customers and adjust to the changing demands of society.”
Getting the basics right
Socially-led or otherwise, anyone seeking to set up a company still needs to understand business basics and the building blocks that make a successful business.
Education and training is key. We’re bombarded with stories in the media of businesses raising large amounts of capital. This is just one example of what success looks like, but can sway aspiring entrepreneurs into believing that fund raising with external investors is crucial to ‘make it’.
Yes, raising capital is often a key element to grow your business. But ensure you understand various sources of capital (loans, grants, equity based) and their impact on your business.
For example, some companies give a portion of their business away in exchange for rapid growth capital. These investors are often looking for their capital to ‘work for them’ and provide better returns than if they had put it in a listed company or other investment products. But there are pressures that come with having investors, especially if those investors are looking for a rapid exit and large multiples on their return.
The recent pressure on WeWork & Uber highlights that fund raises that are made in order to fuel rapid growth may fall out of favour as the focus investor attention turns to profitability.
It’s up to all of society to contribute to an awareness about good business fundamentals and to educate both the current and next generation. It should start at school, with the education system incorporating entrepreneurship and real world examples of running a business into their curriculum.
Founders4Schools, started by Sherry Cortu MBE, has done a great effort to educate over 300k school children helping bridge the gap between education and the world of work.
A more conscious consumer base, more purpose-led businesses and an increased focus on business education will certainly influence the future UK small business landscape.
Find that interesting for your business? Let us know! Watch out for the next article in this series - The rise in UK’s small business – government.