Taking a step back

I assume all FCP201 teams are now fine tuning their pitches for Wednesday! I thought it might be helpful to step back from the intensity of the discussions and the last minute planning, by looking at the diversity of businesses. From the simple corner shop and newsagent, to the complex multinational oil companies: there are some common elements and of course there are also some major differences. I wonder if the only difference between such companies is the scale of initial investment, at start-up phase? Let's see.

When I think of big business, I think of manufacturing industries such as oil, mining, motor cars; and for service industries I think of airlines, train companies, McDonalds. In terms of finance, I immediately think of the big banks and Lloyds of London. Of course the majority of businesses in the UK are SMEs (small to medium sized enterprises, although this acronym is less used today, it defines a company with around 50-100 staff). How do I know? Well Companies House provides access to individual company information, including date of incorporation, broad financial position and who's who at the top. A company check online can also tell you a little more, such as cash in the bank and the history of the Directors etc. All of this information is available online, free of charge. The first thing to note is that as of 2010 (the last survey from Companies House), there were 4.5m companies registered in the UK, with an average of just over 5 employees per company. This immediately tells you something about the Business culture in the UK. The population is (approximately) 65m, with 22.5m employed by SMEs and a relatively small number of "big players". In fact the NHS is Europe's biggest single employer, and in any city, the Education Institutions come a close second. The figures, however imply that most companies are, what are often called, micro-SMEs. Some might employ one other person. Take a University Biotech spin-out. I looked up Absynth Biologics via Company Check. It looks like they have around 10 employees and they have a base at the former Astra Zeneca Science Park south west of Manchester. Their business is predicated on IP in the vaccine/antimicrobial area. I think the data give an indication of the financial status of a company of this kind. You should take a look, maybe search for companies you know! It can be very enlightening!

Let's look at the investment issue. As I said at the beginning, companies come in all shapes and sizes, but let's think about one of the most critical, and largely traditional, industries that has been around since early civilisation: mining. Mining has been fueled by the search for precious metals (which is of course somewhat arbitrary, historically), the extraction of minerals for manufacturing, during the iron age, the bronze age and, right up to date, the quest for components of mobile computing devices. The current top 5 precious metals are: number 1 Rhodium ($40 000/kg), Platinum ($39K), Gold ($38K), Palladium ($26K), Osmium ($12K), with Silver way down the pack at $450: and coal sells at a mere $0.05/kg! However, just stop for a minute and think of what it would take to set up a mining business. A quick brainstorm with your group would yield the following (not in any particular order, and certainly not a comprehensive list): 

• Land acquisition (purchase, lease, steal!)
• Capital equipment (diggers, trucks and rails, distribution via train, road, waterways)
• Work force (from manual labour through surveyors, engineers, mineralogists, sales and marketing)
• Security (depending on location, this can be a major expense)

Not, I imagine an industry to get into lightly. I couldn't begin to imagine the investment costs of a mining start-up and the length of time before it becomes a break even business. And then how sustainable is it? I suppose coal mining has been around a few hundred years: it is simply that the focus on renewables makes us view coal mining as a "dinosaur" of an industry. I suppose that's inevitable for a fossil fuel business? (Sorry couldn't resist). The same logic would apply to any start-up of this kind; oil gas etc. 

 

I mentioned "service" industries, such as McDonalds and that started as a single restaurant, specialising in speedy service. The global organisation we know today grew out of a fairly hostile takeover of the original family company, which illustrates one of the most common ways a company expands. An original, innovative idea becomes an ideal business opportunity for an aggressive and ambitious investor. The rest is history! I think the key point here is that McDonalds was a very attractive prospect for investment, and although I used the words aggressive and hostile, this is possibly a retrospective view. I expect the McDonald's brothers were reasonably compensated for their small group of outlets, and the new owners have been responsible for the global success of the company. (I believe the company is facing some significant financial challenges recently).

 

So, are there any successful small scale businesses? Of course there are: it is largely a question of aspiration. I know for example, that many microbreweries enjoy not only commercial popularity, but make a healthy profit. The expectations and aspirations of the founders of a business are another major factor in labelling a business successful or otherwise. I believe the motivation of the company founder(s) at the outset, often determines whether a business is branded successful, or not. It might be worth considering what you want your company and you as a founder, to achieve, both personally and finacially!