the entrepreneur in adversity

Volume 7: The Entrepreneur in Adversity

In co-operation with the Economist Intelligence Unit

Barclays Wealth Insights

Barclays Wealth, the UK's leading wealth manager with total client assets of £133 billion globally (as of 31 December

2007), serves affluent, high net worth and intermediary clients worldwide. It provides private banking, fiduciary services,

investment management and brokerage. Thomas L. Kalaris, the Chief Executive of Barclays Wealth, joined the business

at the start of 2006.

Barclays Wealth is part of the Barclays Group, a major global financial services provider engaged in retail and

commercial banking, credit cards, investment banking, wealth management and investment management services

with an extensive international presence in Europe, the USA, Africa and Asia. It is one of the largest financial services

companies in the world by market capitalisation. With over 300 years of history and expertise in banking, Barclays

operates in over 50 countries and employs over 134,000 people. Barclays moves, lends, invests and protects money

for over 27 million customers and clients worldwide.

For further information about Barclays Wealth, please visit our website www.barclayswealth.com.

About Barclays Wealth

Written by the Economist Intelligence Unit on behalf of Barclays Wealth, this seventh volume of Barclays Wealth

Insights examines the characteristics and motivations of entrepreneurs in a challenging economic environment.

It is based on two main strands of research.

First, the Economist Intelligence Unit conducted a survey of 2,300 affluent and wealthy investors with investable

assets ranging from £500,000 to in excess of £30 million. Among these 2,300 respondents, 960 were entrepreneurs.

Respondents were spread across a number of key international markets, with the highest numbers of respondents

from the United States, India, United Kingdom, Singapore, Hong Kong, Canada, Switzerland, Spain, the United Arab

Emirates and Monaco. The survey took place between March and April 2008.

This was supplemented with a series of in depth interviews with experts on entrepreneurship. Our thanks are due

to the survey respondents and interviewees for their time and insight.

About this report

For information or permission to reprint, please contact Barclays Wealth at:Barclays Wealth Insights, Barclays Wealth, 1 Churchill Place, London, E14 5HPTel. 0800 851 851 or dial internationally +44 (0)141 352 3952 or visit www.barclayswealth.com

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ForewordAt Barclays Wealth, we are focused on providing our clients with the resources and knowledge to manage theirwealth effectively.

In this endeavour, we have partnered with the Economist Intelligence Unit to develop research that delves intowhat it means to be wealthy in the 21st century.

In this volume of the Wealth Insights series, ‘The Entrepreneur in Adversity’, we build on the earlier findings ofVolume 1, which showed that wealth is increasingly generated from entrepreneurial endeavour, in order toestablish a deeper understanding of the entrepreneur.

We compare the conditions for entrepreneurship around the world, and explore the characteristics and motivationsthat shape their behaviours. As the global economy remains turbulent, we reflect on how entrepreneurs will fare.Our findings indicate that for many, a testing environment can be a time to create a winning business strategy.

As well as consulting with 2,300 wealthy individuals around the world, including almost 1000 entrepreneurs, theEconomist Intelligence Unit worked with a panel of experts, drawn from academia, industry and financial circles, toprovide additional insights and perspectives.

I hope you find this report an informative and entertaining read.

Thomas L. Kalaris Chief Executive Barclays Wealth

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Our Insights Panel

Fouad Alaeddin, Managing Partner of Ernst & Young Middle East

Gerard Aquilina, Head of International Private Banking and Vice Chairman of Barclays Wealth

Fergal Byrne, Report Author

Tony Cohen, Head of Entrepreneurial Business at Deloitte

Charles Collier, Senior Philanthropic Adviser at Harvard University

Sherry Coutu, Serial Entrepreneur and Active Business Angel Investor

Didier von Daeniken, Chief Executive of Barclays Wealth Asia Pacific

Paul Graham, Partner at YCombinator.com

Susan Mackenzie, Director of Philanthropy UK

Tom McKaskill, Serial Entrepreneur and Author

Richard Moross, Founder of online printing company MOO

Sean Phelan, Founder of Multimap.com

Ramesh Prabhakar, Managing Partner of Rivoli Group

Professor Kenneth Preiss, Zayed University in Abu Dhabi

Danny Rimer, Partner at Index Ventures

Kanwaljit Singh, Co-Founder of Helion Venture Partners

Professor Rama Velamuri, Associate Professor at the China Europe International Business School

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Introduction

Over the past decade, entrepreneurs have becomeincreasingly important – and visible – players in the globaleconomy. Ongoing programmes of liberalisation,privatisation and economic reform in many countriesaround the world have democratised entrepreneurship,creating a fertile environment for the development of newbusiness ventures. Today, the world’s most successful,and wealthiest, entrepreneurs are just as likely to originatefrom India, China or the UAE as they are from the moreestablished markets of the US, UK or Japan.

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But while the broad trend around the world has beentowards a more conducive environment forentrepreneurship over the past decade, recent turmoil inthe financial markets has altered the landscape for thefunding and development of successful ventures. Today,entrepreneurs must contend with an ongoing contractionof credit, declining consumer and business confidenceand a sluggish forecast for growth in OECD countries.Even in fast-growing emerging markets, such as Chinaand India, economies are expected to cool as a result ofdeclining demand for exports. In combination, thesefactors will undoubtedly create more difficult conditionsfor many entrepreneurs over the next few years.

However, for some entrepreneurs, a challengingeconomic environment is a time of opportunity. Thecharacteristics that we most associate withentrepreneurs – risk-taking zeal, self-belief and theability to think differently from the herd – come intotheir own at a time when more conservative businessesare pulling back from investments and avoiding risk.

While success is far from guaranteed in theseconditions, entrepreneurs should recall that previousdownturns have been fertile breeding grounds for thestrongest ideas and enterprises.

The aim of this study, which is produced by theEconomist Intelligence Unit on behalf of Barclays Wealth, is to examine the current environment forentrepreneurship around the world, and to explore thedeterminants of success for entrepreneurs in both goodtimes and bad. Based on a global survey of more than2,300 high net worth individuals, including 960entrepreneurs, the report also explores the impact ofrecent financial turmoil on the world of entrepreneurshipand asks if the current environment should be seen asone of opportunity, as well as just adversity.

Executive summary

Perseverance becomes an essential quality forentrepreneurs in a challenging environment

Every start-up faces its share of barriers, obstacles andnaysayers, but in more challenging economic times, theseproblems are all the more difficult to overcome. The mosttraditionally recognised entrepreneurial traits – awillingness to take risks and creativity – can helpentrepreneurs to steer round some of these challenges,but a thick streak of tenacity is also required to succeed inthe current environment. As a result, survey respondentsrate perseverance as the single most important qualityrequired by today’s successful entrepreneurs.

The ability to make money is not the main factor motivating entrepreneurs

In the public imagination, entrepreneurship is oftenlinked with financial success. Our survey suggests,however, that money does not play as important a rolein motivation as many would believe, with just underone third of respondents saying that the possibility tomake large sums of money is an advantage of being anentrepreneur. While there is no doubt that money isvital for an entrepreneur to achieve his or her vision, ourresearch suggests that it is more an indicator of successrather than the prime motivation.

The conditions for entrepreneurship are improving in some regions…

Respondents cite the Middle East and North Africa asbeing the region that has seen the biggestimprovement in the environment for entrepreneurshipover the past decade. Although conditions vary fromcountry to country, it is clear that ongoing economicreform and political support for enterprise is leading towidespread change, fuelling many new opportunitiesfor entrepreneurs both within the region andinternationally. Asia-Pacific also performs well on thismeasure, no doubt reflecting the strong economicdevelopment and liberalisation that is taking place inthe region’s powerhouses of India and China.

…but in others there are concerns about certainaspects of the business environment

The more mature markets of Western Europe and North America remain highly attractive regions forentrepreneurs, thanks to their strong institutions andavailability of capital. There are grumbles among someentrepreneurs, however, that certain aspects of thebusiness environment are becoming more difficult.Almost 40 per cent of respondents from North Americaand Western Europe say that the regulatoryenvironment has deteriorated in their region over thepast decade, while a similar proportion have concernsabout the cost of doing business.

The credit crisis has resulted in a less favourableclimate for business exits

Conditions for exits have become less favourable inrecent months as the impact of the credit crisis hasfiltered through to the real economy. When looking toexit their business, the most important factors forentrepreneurs in the survey are the value of the business,the point in the business cycle and the level of interestfrom buyers. In the current climate, all three will havedeteriorated for most entrepreneurs, so it is likely thatany who were planning a sale will be putting plans onhold. That said, only a minority of entrepreneurs create abusiness with an exit in mind. For most, the motivation isto build a successful business over the long-term.

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6

The personality of the

entrepreneurAlthough entrepreneurs vary considerably in theirmotivations and aspirations, it is widely assumed thatthe most successful share certain personality traitsand attributes. Distinctions are often made between‘managers’ who work for someone else andentrepreneurs who create and lead their ownbusinesses. As such, two characteristics that standout are the entrepreneur’s willingness to bear risk and his or her ability to create and execute new ideas.

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“You can always find people who tellyou that your idea or your businesswon’t work, and who don’t believe in your business. Tenacity is the key to success.”Sherry Coutu, Entrepreneur and Active Business Angel Investor

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We may feel that we know an entrepreneur when wesee one, but entrepreneurship as a concept remainselusive. Despite decades of academic research intothe subject, there is no clear consensus around thequalities that make a successful entrepreneur anddebates continue to rage about how exactly anentrepreneur should be defined.

Perhaps the two most influential voices in thisargument are the 20th century economists JosephSchumpeter and Frank Knight. In his 1911 book, TheTheory of Economic Development, Schumpetersuggested that the key characteristic of an entrepreneur was that he or she was aninnovator, who creates a new product or service, anew method of production, or opens a new marketor source of supply. It is Schumpeter who coined theterm “creative destruction” to refer to the processwhereby an entrepreneur develops an idea thatrenders an old way of doing things obsolete.

For Frank Knight, it is the entrepreneur’s response touncertainty that is the defining characteristic. In Risk,Uncertainty and Profit, his 1921 work, he argued thatthe main function of an entrepreneur was to assumethe risk and profit from the uncertainty associatedwith certain situations, such as a change incustomer demand.

What is your current work situation?

More recent definitions have attempted to combinethese two strands, pointing out thatentrepreneurship depends both on opportunities thatcan be converted into innovation, and the kind ofindividual who is prepared to take on the uncertaintyinvolved. Yet despite this progress, a consensus ondefinition remains elusive. Phenomena such as‘intrapreneurship’ and the corporate entrepreneur –the promotion of entrepreneurial tendencies in largeorganisations – muddy the waters still further.

In our survey of 2,300 high net worth individuals,roughly half considered themselves to beentrepreneurs, and half did not. Yet not all theindividuals who classed themselves as entrepreneurscould be described as such in the classic sense.Among the 1,174 who said that they wereentrepreneurs, 16 per cent were company employees,13 per cent were family members within a familybusiness and seven per cent were either retired or notcurrently working. Self-selecting entrepreneurs, itseems, are more widely distributed in the economythan classical definitions would tell us.

For the purposes of this study, we have taken a morenarrow definition of entrepreneurship. When we referto entrepreneurs who took our survey, we refer to acombination of owner/managers, company foundersand partners/owners in a company that theindividual has purchased.

Defining entrepreneurship

26%

18%

16%

13%

10%

8%

4%

3%

I am an owner/manager

I run/am a partner in a company of which I was a founder

I do not own a business but am an employee

I am a family member within a family business

0

I run/am a partner in a subsidiary of a larger group

I run/am a partner in a company that I purchased

I am retired

I am not currently working

10 20 30 40 50 10060 70 80 90

Graph 1 – Respondents who class themselves as ‘entrepreneurs’

Among the 960 entrepreneurs surveyed for this report,the most important characteristic required to create asuccessful enterprise is believed to be perseverance.“Tenacity is hugely important to succeed as anentrepreneur,” says Sherry Coutu, a Canadian serialentrepreneur and active business angel investor whonow lives in the UK.

Paul Graham, a Partner at YCombinator.com, aninnovative American start-up incubator, who hasworked with a large number of start-up businesses, hasdiscovered first hand the importance of perseverance.“At first, we thought that intelligence would be thebiggest predictor of start-up success,” he says. “Wenow think that determination and persistence areactually more important. The will to keep going and notgive up is crucial – particularly when you feel like youare doomed, which is something that happens topractically every start-up.”

In more testing economic circumstances, tenacity is anespecially valuable trait because the kind of obstaclesthat stand in the way of a successful venture are moreprevalent and frequent. With funding more difficult tocome by, and with a decline in sales and revenue morelikely as consumer confidence dips, entrepreneurs requirereal grit to stick with their idea and ride out the storm.

10

Which of the following characteristics do you think are most important to be a successful entrepreneur?

Creativity

Comfort and skill in making decisions

Ability to adapt to change

Motivated by new challenges

0

Willingness to take risks 35%

Perseverance 44%

33%

25%

24%

23%

High degree of competitiveness 21%

19%Strong financial acumen

19%Strong desire to make money

18%Leadership skills

2%Other, please specify

10 20 30 40 50 10060 70 80 90

The importance of tenacity

Graph 2 – Entrepreneurs only

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The survey respondents saw willingness to take risks asbeing the second most important characteristic of anentrepreneur. Experts distinguish, however, betweentaking risks and managing risks. “In my experience,many entrepreneurs do enjoy risk,” says Tony Cohen,Head of Entrepreneurial Business at Deloitte. “But theyplan for it and mitigate risk. Most entrepreneurs saythat they are not risk-takers, but they will takecalculated risks. They have done their research beforethey make decisions.”

Respondents rated creativity as the third most importantquality. “Entrepreneurs tend by their very nature to becreative,” says Didier von Daeniken, Chief Executive ofBarclays Wealth Asia Pacific. “Of course there are manydifferent ways to be creative. Entrepreneurial creativity isnot the same as artistic creativity. It’s more about usingcreativity to solve problems. Entrepreneurs come up withnew questions that other people don’t see – and theyneed ingenuity and creativity to solve these problemsand realise their ambitions.”

“Entrepreneurship is all about

solving problems that other people

can’t. Without creativity, new

businesses wouldn’t be able to

dislodge customers from big

behemoths.”

Ms Coutu believes that creativity is an often underrateddriver of entrepreneurs hip. “Entrepreneurship is allabout solving problems that other people can’t,” shesays. “Without creativity, new businesses wouldn’t beable to dislodge customers from big behemoths.” Sheadds that creativity can be defined in many differentways. Some entrepreneurs may be creative in their useof technology, some may be creative in terms of newproduct development, while others may be creative interms of bringing teams together.

Risk-taking and creativity

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In the public imagination, entrepreneurship is oftenlinked with financial success, no doubt because therewards are very visible, especially at a time whenentrepreneurship has been so widely celebrated in themedia. Despite this link, the survey suggests thatmoney does not play as important a role inentrepreneurial motivation as many would believe. Only one in five respondents stated that a strong desireto make money is a fundamental characteristic of beingan entrepreneur.

“You have to remember when you look at successfulentrepreneurs that there is what’s called a survivorbias,” says Mr von Daeniken. “This means that for everyfinancially successful entrepreneur you see, there aremany others who have not been so successful. There isno doubt that money is important to entrepreneurs – itis necessary to build the business and realise theirvision, and also reflects how well they are doing theirjob. So clearly, it can have a big impact on anentrepreneur’s life but it’s rarely the thing that givesthem the most satisfaction.”

Several entrepreneurs interviewed for this report concurwith this view. “I do like making money,” says Ms Coutu,“but for me it is an indicator that you have got it right. Itmeans that you have a lot of satisfied customers whoare buying your product.”

For Richard Moross, the founder of online printingcompany MOO, money is not the reason why he is anentrepreneur, but he adds that he does expect to berewarded for the long hours and hard work that he hasput into the business.

“I do like making money but for me

it is an indicator that you have got it

right. It means that you have a lot of

satisfied customers who are buying

your product.”

The extent to which money is a motivating influencedoes vary according to age. Our research suggests thatmoney is more of a driver among younger entrepreneursthan older: 57 per cent of those under 50 say it is animportant motivation to create and protect wealth,compared with 48 per cent of those over 50. As theolder respondents tend to be wealthier, it is likely thatthey feel they have met their financial needs, whereasthe younger, less wealthy entrepreneurs are at an earlierstage of their career when money matters more.

Money isn’teverything

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Richard Moross is the 30-year-old founder and Chief Executive of MOO.com, a venture-capitalbacked on-demand printing company. Mr Morosshad the initial idea for MOO – personal businesscards – in 2003, when he was 25. A few months later he came up with a unique process that uses a proprietary digital printing technology to mass-produce short-run, variable print jobs. Today, MOO has 35 employees and has shipped its products to more than 181 countries.

Before setting up MOO, Mr Moross never thought ofhimself as an entrepreneur. “I was driven by thepower of an idea,” he says. “As soon as I had fullythought through the idea, I was compelled to set upthe business. I had no choice but to take my life inthis direction. It became an act of self-fulfillment.”

“Starting a business is like running

a marathon. Actually, it’s more like

running a marathon in the dark,

with no indication of where

you’re going.”

In common with the survey respondents, Mr Morossbelieves that self-belief is critical to entrepreneurialsuccess. “Being an entrepreneur can be a lonelybusiness,” he explains. “To be genuinely innovative,you have to take a new idea along wild tangents andcan wait months or years to demonstrate the realvalue of it to people. The bigger the idea, the morelikely people are to say it’s crazy. Believing in yourselfis the only way you’ll get through the criticisms,knock-backs and distractions that sharing an idea fora business can generate.”

He also agrees with the respondents in their view ofthe importance of determination and perseverance.“Starting a business is like running a marathon,” hesays. “Actually, it’s more like running a marathon inthe dark, with no indication of where you’re going,where your competitors are or how long the race will take. It takes incredible determination, bloody-mindedness some might say, to bring something likethis to life.”

“The bigger the idea, the more

likely people are to say it’s crazy.”

Like many entrepreneurs, he considers theindependence of the role to be one of the keybenefits. “You get to be your own boss and imposeyour vision of the world,” he says, “and that can bevery liberating. Of course, there are also the financialrewards if your company is a success, but you alsohave to love what you do. The end-game [an exit]could be years away, and it’s no fun playing formoney if you don’t enjoy the game itself.”

With increasing sales and new products reachingnew markets, the company is at an exciting stage ofits development. “The proof of the pudding will be inthe exit,” says Mr Moross. “Ultimately we will seehow successful we have been and how much valuewe have created when we sell the business.”

Richard Moross, founder of MOO.com

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Entrepreneurs require perseverance and tenacity toovercome the obstacles that stand in the way ofsuccess, but they also need to have confidence in theirown abilities. Serial entrepreneur Sherry Coutu seesself-belief as the bedrock of entrepreneurship. “Self-belief and self-confidence are crucial for anentrepreneur,” she says. “If you don’t believe in yourself,it’s hard to succeed.”

Most successful businesses depend on a combinationof skill and good fortune. It is clear, however, that themajority of respondents to our survey see their successas being achieved via their abilities, rather than throughluck. Two-thirds believe that their success is down totheir own skills and around one in five believe that theirsuccess has been largely due to influences outside theircontrol. This finding is consistent with the perceivedimportance of self-belief; entrepreneurs need to haveconfidence in their abilities, even if this meansdownplaying the role that good timing or fortune haveplayed in their success.

Again, there is a difference between younger and olderentrepreneurs, with those under 50 more likely thanthose above that threshold to believe that their successdepends more on ability than luck. This could reflect thefact that the experienced, older entrepreneurs have amore realistic assessment of the relative importance ofluck and ability.

“Self-belief and self-confidence are

crucial for an entrepreneur. If you

don’t believe in yourself, it’s hard

to succeed.”

It is also important to note that, while self-belief isclearly important, there is a limit to the amount that isrational. In the context of entrepreneurship, too muchconfidence is just as damaging as a lack of self-belief, as the owners of many failed businesses have found totheir cost.

Believing in yourself

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The environment for

entrepreneurship

Most entrepreneurs understand that the quality of thebusiness environment in which they operate can makethe difference between success and failure. If a robustpolitical, economic, financial and regulatory framework isin place that supports innovation, then entrepreneurshipwill thrive, but if there are deficiencies in the businessenvironment, then even the strongest entrepreneurs withthe best ideas will founder.

Early-stage entrepreneurs are particularly susceptible toshortcomings in the external environment. Unlike largercorporates, they lack the safety net of resources to dealwith complex or inconsistent bureaucracy, and theymay be more dependent on the support and advice ofexternal intermediaries. And without the foundation

stone of a thriving investment community made up of business angels, venture capital firms and well-resourced banks, entrepreneurs simply cannot get their ideas off the ground.

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There is a growing body of research that links levels ofentrepreneurship with economic development. TheGlobal Entrepreneurship Monitor, a research consortiumled by the London Business School and Babson Collegein the US, describes how, in countries with low percapita GDP, the economy is characterised by largenumbers of small, entrepreneurial businesses.

As income increases, the process of industrialisation and economies of scale allow the development of largerbusinesses, which can employ a higher number ofpeople. This causes the quantity of early-stageentrepreneurial businesses to fall. Then, as incomeincreases further, levels of entrepreneurship rise again asa more developed economy and robust set ofinstitutions enable more opportunities for thepopulation. Thus, in relation to economic development,levels of entrepreneurship follow a U-shape of high initiallevels of entrepreneurial activity, followed by a drop, andfinally a subsequent increase as an economy matures.

In order to reinforce economic development throughentrepreneurship, it is key that the business environmentmust support not just early-stage entrepreneurialactivity, but the ability for those businesses to benurtured and grow to the stage where they cangenerate wealth more widely. One of the main factors infacilitating this transition is government support.

To create the foundations for successfulentrepreneurship, governments must perform a range offunctions, including the development of infrastructure,the removal of obstacles, the elimination of bureaucracyand investment in education. The benefits of thisapproach can be seen in countries around the world,such as Singapore, the US and, more recently, theUnited Arab Emirates, which owe part of theirdevelopment to a sustained focus on these factors.

Entrepreneurship and the economy

To create the foundations for successful entrepreneurship,

governments must perform a range of functions, including the

development of infrastructure, the removal of obstacles, the

elimination of bureaucracy and investment in education.

18

The role of governmentand society

Researchers have found that US policies, in particular,have provided strong support for entrepreneurship. Forexample, the government has enabled the creation offinancial markets to fund growth companies, such asNASDAQ, the provision of protection for research anddevelopment and intellectual property, federal and otherstimulation of high-tech research, and the opening ofnew markets through deregulation. The government hasalso made the process of incorporating a businessrelatively straightforward.

Societal values can also enhance, or deter, thedevelopment of entrepreneurial activity, as MichaelCamp, a GEM Project Director and Head of Research atthe Kauffman Center for Entrepreneurial Leadership,recently pointed out at the launch of a recent GEM study.“No matter how rich a country is in opportunity and howwell endowed it is with capacity for business start-ups,

the extent to which society regards the pursuit ofopportunity as socially legitimate will impact the level ofentrepreneurial activity. A set of social and cultural valuesthat encourages new enterprise is a prerequisite ofentrepreneurial activity and a defining feature of anentrepreneurial society.”

The media has an important role to play in thedevelopment of these social and cultural values. In recentyears, there has been increased coverage ofentrepreneurship in many parts of the world, not only inthe financial press, but on television and other popularmedia channels. Increasingly, entrepreneurship issomething that is celebrated and seen as an aspiration,while successful entrepreneurs have become mediacelebrities in their own right.

21%

Significant improvement 1 2 3

Overall environment for entrepreneurship

Cost of doing business

Complexity of business relationships

Regulatory environment

Availability of talent

0 10 20 30 40 50 60 70 80 90 100

Options for expanding internationally 28%

Options for selling a business 17%

Options for raising finance 17%

16%

10%

12%

10%

37%

32%

36%

38%

25%

28%

25%

20%

30%

27%

27%

28%

28%

31%

9%

15%

14%

14%

26%

23%

23%

6%

7%

6%

4%

10%

10%

11%

11%

38%

28%

26%

31%

10%

22%

5%

8%

Scope for developing original ideas

4 Significant deterioration 5

Compared with 10 years ago, what change has there been to the following aspects of entrepreneurship?


19

In the most general terms, just over half ofentrepreneurs questioned for this survey believe that theoverall conditions for entrepreneurship have improvedover the past decade. Respondents from Asia-Pacificand Middle East and North Africa are most likely toreport an improvement, a finding that can be attributedto the fact that many countries in these regions are at anearlier stage of their economic development. As thepolitical, regulatory and economic institutions thatsupport entrepreneurship become more established, it isnatural to see conditions improve more rapidly than inthe more mature markets of North America and Europe(where respondents are also most likely to report adeterioration in the overall environment).

“We are seeing people with

university degrees and deep

industry knowledge starting a

wide range of ventures in China.”

In China, opportunities for entrepreneurship arebroadening considerably thanks to government supportand ongoing liberalisation. Professor Rama Velamuri,Associate Professor at the China Europe InternationalBusiness School, points out that entrepreneurship inChina has changed from a predominantly subsistence-driven model, to an opportunity-driven one. In otherwords, individuals are becoming entrepreneurs out ofchoice rather than because they have no option.

“We are seeing people with university degrees and deepindustry knowledge starting a wide range of ventures inChina,” he says. “Many are giving up lucrativeemployment to launch these businesses. Another trendis that more and more are first generation, so they don’tcome from established business families.”

He adds that the government in China is adopting a top-down approach to encouraging and nurturingentrepreneurship. “Innovation is on the national agendain China,” he says. “The government is investing inuniversities, encouraging the Chinese diaspora to return,and setting up new technology parks on a massive scale.It is not unusual for these parks to contain more than500 businesses being incubated at one time.”

The Middle East and, in particular, the six countries ofthe Gulf Co-operation Council, is a region that hasbecome far more conducive to entrepreneurship overthe past decade (although there is considerablevariation from country to country). Ongoingliberalisation and privatisation programmes, thedevelopment of major financial centres in the regionand a greater willingness to attract foreign investmenthave all contributed to an increasingly fertileenvironment for successful entrepreneurship. At a timewhen major global economies are slowing and tippinginto recession, the GCC also benefits from its high levelof capital reserves and the recent high price of oil.

“Innovation is on the national

agenda in China. The government is

investing in universities, encouraging

the Chinese diaspora to return.”

Regional developments

20

Charts for entrepreneurship

0

Middle East and North Africa

Asia-Pacific

North America

Europe

10 20 30 40 50 10060 70 80 90

Graph 4 – This chart uses a simple formula to illustrate the extent to which entrepreneurs perceive the overallenvironment for entrepreneurship to have improved over the past decade. A higher score denotes a morewidely perceived improvement

The overall Enterprise Environment Index

Middle East and Africa

Graph 5 – Entrepreneurs from Middle East and Africa only

Options for expanding internationally

0 20 3010 40 50 60 70

Options for selling a business

Options for raising finance







Improvement Deterioration

21

North America

Graph 7 – Entrepreneurs from North America only


0 20 3010 40 50 60 70











0 20 3010 40 50 60 70










Asia-Pacific

Graph 6 – Entrepreneurs from Asia-Pacific only

22

Europe

Graph 8 – Entrepreneurs from Europe only


0 20 3010 40 50 60 70 80










It is interesting to note that the Middle East and NorthAfrica is also perceived as the region that has seen thebiggest improvement in terms of the scope fordeveloping new ideas. Entrepreneurship in the MiddleEast has, until recently, been slow to develop. Onereason for this is the high proportion of steady, well-paid public sector jobs, which can prove to be astrong disincentive to take on the uncertainty ofbecoming an entrepreneur. “One has to balance thepersonal motivations and risks of creating a businessagainst the security of receiving a significant monthlywage over one’s working life,” says Professor KennethPreiss of Zayed University in Abu Dhabi.

But in the past few years, this situation has started tochange. Oil wealth is being directed into education,which is gradually encouraging the development ofstart-ups. Although the scope for developing originalideas in the region is starting from a low base, it is clearthat an upwards trend is underway.

In addition to its high score for enhancement of theoverall environment for entrepreneurship, respondentspoint to the Middle East and Africa as having improvedmost in terms of the scope for developing new ideasand second most in terms of options for expandinginternationally. Fouad Alaeddin, Managing Partner atErnst & Young Middle East, points out thatentrepreneurship is much more widely discussed in the region than a few years ago.

“Entrepreneurs all over the

Middle East have been encouraged

to tell their stories – which were a

well-kept secret for too long.”

23

“One has to balance the personalmotivations and risks of creating abusiness against the security ofreceiving a significant monthly wageover one’s working life.”Professor Kenneth Preiss, Zayed University in Abu Dhabi

25

If the Middle East and Africa have seen the biggestimprovement in the climate for entrepreneurship, thenthe United Arab Emirates is the country within thatregion where change to the business environment hasbeen most dramatic. The 2006 GlobalEntrepreneurship Monitor study, an influential reporton enterprise around the world, ranked the UAE 41st out of 62 countries for the promotion of anenvironment for start-up businesses andentrepreneurial activities. In the 2007 study, it hadrisen to 25th.

Professor Preiss of Zayed University, who co-ordinatedthe UAE GEM study, says that the role of thegovernment has been crucial in enabling this change.“There is immense government support forentrepreneurs in terms of finance and educationalprogrammes within the UAE,” he says. “Thegovernment is highly motivated towardsstrengthening the basis of the economy, and in sodoing there may well be a shift in the balance fromthe public to private sector. While the public sector inmany countries has been a very strong recruiter ofgraduates, in the future, the private sector is expectedto take up a more active and important role in hiringand recruitment.”

“There is immense government

support for entrepreneurs in terms

of finance and educational

programmes within the UAE.”

Ramesh Prabhakar, Managing Partner of Rivoli Group,a luxury goods retailer with around 300 stores acrossthe Middle East, agrees that there has been a seachange in the business environment in the UAE overthe past decade. He puts this down to the partnershipbetween government, public and private sector. “Thegovernment strategy has been far-sighted. Thecommitment to create a world-class infrastructure forbusiness – in terms of communications, rapid publicsector decision-making, banking and finance – hasclearly paid off.”

But there remain some significant hurdles toentrepreneurship in the UAE in terms of infrastructure,bureaucracy and intellectual property. According toProfessor Preiss, one of the biggest challenges is theperceived risk of starting a new business and fear offailure. “If a new venture fails in the UAE, there is atremendous risk under the current legal system thatone could be sent to jail if there are any unpaid debts.It’s not like in the US, where after bankruptcy, one canstart up another venture a few years later.”

“I spend a lot of time thinking

about how we can recruit and

keep the best people to build

the business.”

In the long-term, availability of talent is also likely to bean issue. “Good people are essential to deliver thekind of service excellence that we as a companyexpect,” says Mr Prabhakar. “There is a relativelylimited labour market in the UAE and a lot ofcompetition for good people. I spend a lot of timethinking about how we can recruit and keep the bestpeople to build the business, about how to share mypassion and commitment to outstanding quality witheveryone in our business.”

The UAE: A fertile environment for entrepreneurship

“Entrepreneurs all over the Middle East have beenencouraged to tell their stories – which were a well-keptsecret for too long,” he says. “The positive economicdevelopments and significant growth enjoyed by theMiddle East in the past three years has opened the doorfor private and family-owned companies to start goingpublic to help finance their needed expansion and,most importantly, to institutionalise ownership andcreate the right governance.”

North America, a region that historically has beenclosely associated with support for entrepreneurship,continues to perform well according to respondentsbased there. It shows most improvement in terms ofoptions for raising finance – starting already from a veryhigh base in terms of availability of venture capital andother sources of funding – while the majority ofrespondents continue to see improvements in thescope for developing new ideas and options forexpanding internationally.

It fares less well on the regulatory environment, whereonly 31 per cent have seen an improvement over thepast decade. Although the US has traditionally beenknown for its light-touch regulation, interventions suchas the Sarbanes-Oxley Act of 2002, a set of rulesenacted in the wake of the Enron scandal to improveprobity and transparency of governance, havedramatically increased the regulatory burden for listedcompanies. This, in turn, has discouraged someentrepreneurs from flotation as an exit possibility, atrend reflected in the fact that North America is seen asthe region with the least improvement in terms ofoptions for selling the business.

“I don't think the legislators who wrote Sarbanes-Oxleymeant to kill the IPO market,” says Mr Graham, “but ifthey could overhear the conversations of start-upfounders, they'd be shocked. The word on the streetnow is that you shouldn't even think of going public [inthe US] and that the only exit is to get bought.”

Europeans, who were most likely to believe that overallconditions for entrepreneurship had deteriorated overthe past decade, were less sanguine about manyaspects of the business environment. In particular, theywere worried about the cost of doing business, withfour out of 10 reporting a deterioration in this aspect ofthe environment. Although input costs are rising forbusinesses all around the world as a result of recentsurges in commodity and oil prices, companies inWestern Europe in particular face more expensivelabour costs than many other regions, as well as a highcost of living. The Business Environment Rankings, runannually by the Economist Intelligence Unit to measurethe quality of the business environment in 82 countriesaround the world, finds that Western Europe scorespoorly on these two measures when compared withother regions.

A survey conducted in October 2008 by the Federationof Small Businesses, a UK member organisation,highlights some of the concerns. Asked whether theyhad seen the cost of operating a small businessincrease in the past 12 months, 84 per cent agreed,while 46 per cent reported a decrease in trade.

26

“I don't think the legislators who wrote Sarbanes-Oxley

meant to kill the IPO market, but if they could overhear the

conversations of start-up founders, they’d be shocked.”

27

Respondents in Asia-Pacific, like those in the MiddleEast and Africa, are in general confident about the wayin which the business environment has improved overthe past decade. A strong majority thinks that it hasbecome easier to conduct business internationally,which no doubt reflects the ongoing integration of thisregion into the global economy, as well as the huge newopportunities that have opened up for reciprocalinvestment between the west and the east.

“Until quite recently, many

communities in India looked down

on entrepreneurs. But now, it is

becoming much more socially

acceptable and financially viable.”

Inward and outward foreign direct investment in Asiacontinues to reach record levels. In 2006, according toWorld Investment Prospects, an Economist IntelligenceUnit publication, FDI inflows to Asia were US$238.6billion, compared with an average of US$116.2 billionbetween 2001 and 2003. China has been far and awaythe largest recipient of this inflow of investment,accounting for US$78.1 billion in 2006. What isinteresting about FDI flows in Asia is that much of theactivity takes place within the region – intra-regionalinvestment currently accounts for around half of all flows.

Out of all four regions examined for this study, Asia-Pacific has also seen the biggest improvement interms of options for selling the business. Recent yearshave seen a deepening of capital markets in countriessuch as India and China, with record numbers of IPOsgenerating significant wealth for local entrepreneurs,and growing interest from global private equity firms inthe region, especially as their more traditional marketshave cooled.

“The exit scenario in India has been good for someyears,” says Indian Venture Capital Investor KanwaljitSingh, co-founder of Helion Venture Partners. “Therehave been many Indian IPOs, supported by a stockmarket with a good appetite for exciting high-growthcompanies, which are still in the minority on the stockmarket. Also, as many industries are in an early stage ofdevelopment, mergers and acquisitions are a commonway for companies to grow and scale their business,offering another exit possibility.”

In India, perhaps the biggest change in recent years hasbeen cultural. “Until quite recently, many communitiesin India looked down on entrepreneurs,” says ProfessorVelamuri. “But now, it is becoming much more sociallyacceptable and financially viable.”

Certain factors continue to dissuade entrepreneurs inIndia, however. For example, bankruptcy laws are highlycumbersome, and it can take up to 10 years for anentrepreneur to extricate himself from the complexlegal issues involved. This engenders a fear of failureand discourages some entrepreneurs from the saferpath of full-time employment.

28

Money matters

Enterprising individuals, the right opportunities and theinstitutions to support entrepreneurship may beessential ingredients to turn new ideas into successfulbusinesses, but they are not sufficient on their own. Inorder to convert concepts into reality, entrepreneursneed capital. And in societies where funds are readilyavailable for deserving enterprises through venturecapital, private equity and a host of other channels,entrepreneurship is likely to thrive.

According to our survey, which was undertaken prior tothe most recent turmoil to hit global financial markets,53 per cent of entrepreneurs believe that the options forsecuring finance have improved over the past decade. Akey change during this period has been an increase notonly in the availability of capital, but in the range ofstructures by which investments are made.

“There has been a lot more money

available for entrepreneurial

companies and many new sources

of capital. The growth in private

equity in recent years is incredible.”

“IPOs and private placements have always played animportant role in financing growing entrepreneurialbusinesses, and have done so particularly in recentyears,” says Mr von Daeniken. “However, in terms ofraising finance, the balance has recently shifted towardsprivate equity and hybrid hedge funds, with high-networth individuals and family offices also gettinginvolved. Co-investment is also a trend. Certainly,finance options have become broader.”

From his perspective in the UK, Deloitte’s Mr Cohenagrees that a broader range of financing options havebecome available for entrepreneurs. “There has been alot more money available for entrepreneurial companiesand many new sources of capital,” he says. “The growthin private equity in recent years is incredible. Also, therehas generally been much more acceptance of privateindividuals going into illiquid private businesses – that’swhat private equity is mostly about.”

Danny Rimer, a Partner at Index Ventures, one ofEurope’s largest venture capital firms, echoes this point.“Over recent years, so many different funding optionsfor companies have become available. For example,there is AIM in the UK, or NASDAQ in the US, a trade saleand refinancing with a private equity house. There is alsoa trend for secondary offerings, where the investor buysshares off the founders so that incentives are aligned.”

Although the overall trends over the past decade havebeen positive, recent events have transformed thefinancing landscape. Today, sources of credit haveslowed to a trickle and entrepreneurs have far fewerfunding opportunities. “There is no doubt that thecredit crisis is having a major impact on entrepreneurslooking to finance their business across Europe,” saysDeloitte’s Mr Cohen. “The truth is that a lot oforganisations are less willing to take risk and they areincreasingly looking to back their investment withassets. This is very different compared with just a fewyears ago when money was being lent against thebusiness itself.”

29

Availability of venture capital, previously seen as thelifeblood of new entrepreneurial ventures, has in manycountries declined considerably. According to LibraryHouse, a research organisation, there were 357 venturecapital deals in the second quarter of 2008 in Europe,compared with 447 in the first quarter. Investment inventure capital has also fallen, from €1.43 billion in thefirst quarter of 2008 to €949 million in the second quarter.

There is a general trend among venture capital firms tomove away from early-stage investments, with manyciting concerns about excessive risk and poor returns.For example in March this year, 3i, which was once apowerhouse of the venture capital industry, announcedthat it would abandon early-stage investment in start-up companies. This is a very different scenario to2000, when the company managed 750 technologyinvestments valued at US$4.8 billion.

The size of deals being executed by private equity firmshas also fallen since mid-2007. According to Zephyr, adata provider, there were 1275 private equity dealsglobally in the third quarter of 2007, falling to just 705 inthe third quarter of 2008. Deal value has shown an evenmore dramatic decline, with total deal value reachingUS$447 billion in the third quarter of 2007, anddropping to US$57 billion in the third quarter of 2008(see chart).

Despite this bleak funding picture, other sources offinance may go some way towards filling the vacuum.Gerard Aquilina, Head of International Private Bankingand Vice Chairman of Barclays Wealth, points to thegrowing ambitions of sovereign wealth funds as oneinteresting trend, and suggests that these may in somecases replace private equity and hedge funds asproviders of capital to ambitious enterprises.

While it is not impossible to secure funding in thecurrent environment, it is clear that investors will bemuch more discerning about where they put theirmoney and the conditions on which they do so.Entrepreneurs seeking capital will need to get used tofar more searching questions about the track record ofthe management team and future prospects for thebusiness. They will also need to explore the availableoptions more thoroughly, and consider less traditionalfunding options in order to realise their ambitions.

Table 1

Time period No of deals Total known deal value(Announced date) (US$ million)

Q1 2007 1245 234,817

Q2 2007 1275 447,173

Q3 2007 1192 156,834

Q4 2007 1093 128,142

Q1 2008 1028 77,370

Q2 2008 1063 134,306

Q3 2008 705 57,134

Private equity deals by quarter, 2007–2008 (number of deals and known deal value)

30

Opportunity in adversity

At first glance, a downturn may appear to be the worsttime possible for entrepreneurs. Capital is hard to comeby, consumers and businesses are reining in theirexpenditure, and investors are looking for save havensfor their money. But for many entrepreneurs, a testingeconomic climate can be the time to create winningideas. “If we look at history, the most interestinginnovation always comes out of a crisis,” said DavideSola, Associate Professor of Strategy at ESCP-EAPEuropean School of Management, in a recentEconomist Intelligence Unit webcast. “People seem toreact quite positively to adversity. And the reality is thatinnovation, most of the time, is the result of creativity,and creativity is triggered much more when there are alot of difficulties around you.”

“If we look at history, the most

interesting innovation always

comes out of a crisis.”

When capital is abundant and consumer confidence ishigh, entrepreneurs can make big bets and the chancesof those being successful are fairly high – sometimes inspite of the quality of the strategy and business plan.But in a more difficult environment when credit isscarce and confidence low, there is no longer a risingtide to lift all boats. This will certainly lead to morebusiness failures than in the past, but this could beregarded as the “creative destruction” that is requiredfor economies to shed unproductive and unprofitablecapacity. In such an environment, the best ideas will riseto the surface because those responsible have carefullythought through their business plan, partnered withdiscerning investors and made sure that their strategyis appropriate not just in a booming economy but inmore testing times as well.

“Entrepreneurs are by their nature good at adapting tochanging business conditions,” says Mr Aquilina. “Therewill always be some who can take advantage of thesituation and use the environment to enhance theirstrategic position.” He adds, however, that investors willbecome much more discerning – and scarce. “In caseswhere investors will make funds available, they will lookfor entrepreneurs who know how to survive and thrivein testing conditions, who know how to be frugal, andwho have the capacity to sustain themselves.”

A downturn also presents bold entrepreneurs with awide range of opportunities. Business and office spacecan be acquired more cheaply, and suppliers will bemore likely to discount in order to secure business.Competition may be less fierce in some sectors.Entrepreneurs may also see the current climate as onein which to acquire at attractive valuations. In a surveyof board-level executives conducted by the EconomistIntelligence Unit in April 2008, 51 per cent said thatthey thought the current environment had madeconditions more favourable for the strategic acquisitionof assets.

Canny entrepreneurs with a stomach for risk and astrong team of managers and investors alongside themwill undoubtedly be able to profit from currentconditions – provided they can overcome the majorobstacle of securing access to the capital they require.As these entrepreneurs take the plunge, some will nodoubt be mindful of Warren Buffett’s famous adage: “Be fearful when others are greedy and greedy whenothers are fearful.”

31

The realisation of

wealth

32

As well as facing a tighter funding environment,entrepreneurs are also getting used to a narrower set ofoptions for exiting an investment in the current climate. Untilrecently, there were good opportunities for entrepreneurs toachieve partial or full exits on the back of buoyant stockmarkets, strong economic growth, good corporate liquidity,and an active mergers and acquisitions market. Now, thereare fewer opportunities as buyers tighten their belts and asstock markets remain unattractive for flotations.

Exit by IPO, which was once seen as the Holy Grail forentrepreneurs, has become all but unattainable. “Thereare no IPOs taking place at the moment,” says MrAquilina. “M&A figures have fallen dramatically,valuations continue to be extremely challenged andentrepreneurs are postponing exit plans for theforeseeable future.”

Data from Library House show that there were 63 exitsin Europe in the second quarter of 2008, and only threeof these were IPOs. In the same quarter in 2007, therewere 31 IPOs in Europe. In Asia, IPO activity isconsiderably more robust, but even in this fast-growingregion there has been a decline in activity. According tothe European Venture Capital Association, a total of 41companies went public in Asia in the third quarter of2008, down from 98 in the second quarter.

But while the current climate may have temporarilyreduced the flow of exits, the question of what drivesentrepreneurs to exit and the plans that need to be putin place to extract maximum value from thetransaction, remains highly relevant. For decades, the

exit or ‘liquidity event,’ has been the prize for thesuccessful entrepreneur, when years of hard worktranslate into the realisation of wealth. “When you lookat exit planning,” says Mr Cohen, “what you find is thatmost entrepreneurs don’t plan it at all. It’s veryopportunistic. Their focus is on trying to buildsomething of high value and they are not thinkingabout or planning to sell in three years. First andforemost, it’s about building a valuable business.”

Tom McKaskill, author of several books on selling andvaluing companies, echoes this idea. He says that in arecent workshop with around 100 entrepreneurs, heasked how many expected to sell their business in thenext few years. Around 10 per cent indicated that theyplanned to do so. He then asked how many thoughtthey might get an offer. In this case, around 80 per centput up their hands. “Generally few entrepreneurs, apartfrom venture capital-backed companies, really spend alot of time thinking about selling,” he explains. “Mostare optimistic, however, that they will get an offer.”

33

Which of the following factors would be most likely to deter you from selling your business?

29%

25%

16%

13%

9%

7%

3%

Risk of selling too cheaply

New owners would restructure and lay off staff

Potential for the business to be broken up

0

New owners would change strategy

Lack of confidence in new management

Not sure of how to spend time

Other, please specify

10 20 30 40 50 10060 70 80 90

19%

17%

17%

15%

13%

10%

8%

1%

Unrealised ambitions for the business

Fear of selling too cheaply

Expectations of strong future growth

Loyalty to employees

0

Too attached to the business

Unsure of what to do next

Reluctance to lose control of business

Other, please specify

10 20 30 40 50 10060 70 80 90

If you were to sell (or have sold your business), what would be/were your most significant concerns?

To sell or not to sell

According to Mr McKaskill, there are effectively threescenarios when entrepreneurs might sell their business:first, when the business has problems and is strugglingto survive; second, when someone makes an offer at aprice that is difficult to refuse; and third, at a time of theentrepreneur’s choosing, when they might want topursue another opportunity or spend more time withtheir family. “It’s only in the last case that you have somedegree of choice and time to do the process,” he says. “Iwould say that this third scenario accounts for maybe 20per cent of all exits.” Index Venture’s Mr Rimer puts itsuccinctly: “In the main, companies are not sold;companies are bought.”

When it comes to selling the business, the main fear ofentrepreneurs in the survey is that the business would besold too cheaply. Asked about the factors that mightdeter them from making a sale, concerns about failure tomaximise value are also high on the list. But whileeconomic considerations are clearly important, manybusiness owners also retain a strong emotional link totheir company. An important concern among therespondents is that, if they were to sell, the new ownerswould restructure, lay off staff or break up the business.Moreover, the main deterrent preventing respondentsfrom selling their business is that they have unrealisedambitions for the business.



34

“Entrepreneurs have a strong emotional bond with theirbusiness,” says Mr Cohen. “They care about the fate ofthe company and employees. I frequently seeentrepreneurs who won’t sell because they don’t believethat the buying company will treat their people well.”

In cases where entrepreneurs in the survey have sold orintend to sell the business, the realisation of wealth is

seen as the main objective, with the need to focus onnew challenges the next most important. The surveyreveals that a lot of factors are influential in determiningwhen to sell. Chief among them are the value of thebusiness, which 85 per cent see as important, the pointin the business cycle, which 72 per cent see asimportant, and the level of interest from buyers, seen asimportant by 71 per cent.

50%

Very important 1 2 3

Influence from stakeholders

Growth ambitions

Legislative changes

Desire for new challenges

Level of interest from potential buyers

0 10 20 30 40 50 60 70 80 90 100

Options for succession 16%

Retirement plans 20%

Point in the business cycle 30%

12%

21%

11%

29%

33%

30%

42%

30%

41%

24%

5%

29%

24%

21%

34%

11%

32%

41%

12%

15%

4%

17%

25%

19%

20%

10%

11%

3%

7%

3%

13%

4%

31%

2%

5%

35%

40%

11%

22%

1%

3%

Value of the business

4 Not important 5

How influential were/would the following factors be in determining your decision to sell the business?

If they were to sell a business, younger and olderentrepreneurs have somewhat different motivations.Younger entrepreneurs are more likely to consider thepoint in the business cycle and growth ambitions asbeing important, while older entrepreneurs place moreweight on their retirement plans, the desire for newchallenges and the level of interest from potential buyers.

Looking to the future, the current state of theinternational capital markets, general financial instabilityand stalling economic growth will have temporarilycurtailed most exit plans. Mr Graham says, however,that this should not necessarily have a negative impacton the exit prospects for the current wave of start-ups.“You need to remember that it takes at least four to fiveyears on average, and sometimes longer, for a start-upto succeed,” he says. “It’s a very rare economic cycle thatlasts five years. You can be pretty sure that the stage ofthe economic cycle when they’ve succeeded will bedifferent from where it is today.”

Mr Singh of Helion Venture Partners remains relativelyoptimistic about prospects for the Indian market.“There is no doubt that the current financial andeconomic conditions have dampened the appetite forIPOs and other exits in India, but we believe that will notlast for too long – and is the result of an external factorout of our control. Although the US market is clearlyimportant for many Indian companies, the emergenceof a large Indian domestic market will becomeincreasingly important.”

Mr Rimer also takes a longer view with his venture capitalinvestments. “We work on a seven-to-ten year horizonwith our businesses and are not changing our investmentapproach, nor indeed are any of our peers. Our goal is stillto finance entrepreneurs that are passionate aboutbuilding big, world-changing businesses.”


Sean Phelan has spent the past 12 years building UKonline mapping company Multimap.com into aleading online supplier of mapping information. Thissummer, he had the opportunity to spend some timeindulging in one of his favourite hobbies – sailing –following the sale of his business to Microsoft, theworld’s largest software company.

Mr Phelan set up Multimap as a one-man operation ina spare room in 1996, funding the business initiallyfrom his savings. The company offers two differentservices: a free general service for the public thatprovides street maps and driving directions, and amore customised offering for businesses that need toshow their map location on a corporate website.Multimap became profitable in 2003; by mid-2006, itwas receiving some 8 million unique visitors a monthto its website and generating about £9.5 million inrevenues, with about 60 per cent of these comingfrom customised services.

Multimap’s growth was self-funded, apart from onesubstantial outside investment of £1.9 million in 1999from TV production company Flextech (now VirginMedia Television), which was interested in integratingthe service within its cable television offering. In early2006, Virgin decided to exit the business, whichprompted Mr Phelan to start looking for a newinvestor. The goal initially was to sell 30 per cent ofthe company, including the 25 per cent Virgin holding,but with the board’s input, the company decided toconsider all the different options available, from sellinga block of shares through to an IPO.

The board eventually decided to undertake a parallelstrategy to sell the Virgin block of shares at the sametime as looking for buyers for the entire business. MrPhelan was sanguine about the prospect of the sale ofthe business at the time. “I knew that sooner or laterwe would exit, so it wasn’t an emotional wrench forme when I thought about selling the entire business,”he says. “We had some pretty clear financial criteria,but more importantly perhaps, I was very concernedabout what would happen to the team and thebusiness after the acquisition. That became a crucialfactor to consider in any effort to sell the business.”

A week before the deadline for offers, Mr Phelan,together with other UK entrepreneurs, received someworrying news. Capital gains tax for entrepreneurs

selling their business was to increase from 10 per centto 18 per cent. “This helped focus my mind,” says MrPhelan. “We knew that if we didn’t close the deal by 5 April 2008, we would be liable for the higher rate.That wasn’t the motivation for going for a full sale butit was perhaps the straw that broke the camel’s back.”

By the October 2007 deadline, there were severaloffers on the table. The Multimap board accepted theMicrosoft offer, which was in excess of US$50 million,even though it was not the highest. “Microsoftinvested a lot of time early on and really did theirhomework to understand the business and work outhow Multimap would fit into their company,” says MrPhelan. “It understood and valued what we hadcreated: that was very important to us. It was neverjust about the money. We didn’t want to sell tosomeone who didn’t share the same values. We felt,all in all, that Microsoft was the best home for thecompany in every sense.”

After the sale of Multimap in December 2007, MrPhelan was flexible about his ongoing involvement inthe business. “I offered to stay on for as long asMicrosoft wanted in whatever role they wanted,” hesays. “But I think having founders around is not reallya great thing after buying a company. It usually goeswell until the acquiring company wants to make somechanges that the founder doesn’t like. Founders arenot good at toeing the line and not very good athiding how they feel.” Today, Mr Phelan’s ongoinginvolvement is mainly public speaking, and he isleaving the company on amicable terms.

Aware that he would have to deal with some unusualpressures following the sale of the business, MrPhelan made some rules for himself. “I set three rulesthat were to last one year after the sale,” he says. “Thefirst rule was not to try and start another business.The second rule was not to try and buy a business.And third: not to make any mad acquisitions – aircraft,super-yachts or cars you could not safely park on thestreet. This third rule hasn’t been a problem at all. ButI do think there is a temptation when you have justsold a business to think that you know everything, apossibility of overconfidence. These rules are usefulfor any entrepreneur.”

Exit strategies: Multimap.com

35

36

Life after the exit

20%

20%

17%

15%

15%

11%

4%

0%

Travel

Spend more time with family

Setting up a new company

Taking on an advisory role in another business

0

Hobbies/leisure activities

Philanthropic activity

Taking on an operational role in another business

Oher, please specify

10 20 30 40 50 10060 70 80 90

If you have (or were to have) more free time as a result of selling your business, how do/would you spend it?

Exits may be difficult in the current environment, but thepatient entrepreneur who succeeds in selling his or herbusiness has a variety of options in which to channeltheir new-found wealth and freedom. Someentrepreneurs will dive straight back into foundinganother business, while others will prefer to spend timewith family or invest in leisure pursuits. Some will seekto mentor up-and-coming entrepreneurs or becomebusiness angels, while others will adopt a portfolioapproach, playing several different roles at once.

Often, the most immediate question for an entrepreneurwho has gone through the exit process is the nature oftheir ongoing relationship with the business. This can betricky. “There are emotional issues for an entrepreneurwho stays involved in the business after the exit,” saysMs Coutu. “It can be difficult for them, as inevitably thecompany will want to make some changes.Entrepreneurs need to learn to distance themselvesfrom the business.”

Charles Collier, Senior Philanthropic Adviser at HarvardUniversity, who works with many US entrepreneurs afterthey have exited their businesses, stresses theimportance of keeping a work ethic after the exit,notwithstanding the desire to spend more time withtheir family. “It can take a couple of years for anentrepreneur to really get an understanding of what

they want to do with their lives after their liquidityevent,” he says. “Many entrepreneurs understandablyare keen to spend time with their family, particularlyafter they have invested a lot of time in building up theirbusiness. But it’s important for those entrepreneurs withyounger children to instil a work ethic by going out tothe office every day.”

Serial entrepreneurship, a trend that has already beenobserved for some time in the US, is also becoming moreprevalent in countries such as the UK. “In the past, manyentrepreneurs in the UK used to build the business, sell itand then live off the proceeds,” says Mr Cohen. “That’schanged now. More people want to get involved in newventures, leading to more serial entrepreneurs. We areseeing many more entrepreneurs that have a muchbigger appetite to do something again.”

In Asia, a strong culture of family business ownershipand succession means that serial entrepreneurship isless widespread. “If they go through an IPO, Asianentrepreneurs often sell the minimum number of sharesnecessary to float the company and will keep tightcontrol of the business,” says Mr von Daeniken. “Mysense is that there is less serial entrepreneurship in Asia,although entrepreneurs may become involved in otherprojects within the family group after the IPO.”


37

Philanthropic activity may be fairly low on the list ofpost-exit priorities for entrepreneurs in the survey, butthe number that are dedicating at least some of theirtime to charitable work is on the increase. Moreover,the way in which entrepreneurs are approachingphilanthropy is changing, with many seeking to applythe lessons they have learned in business to the wayin which they give. Although many of the trendsdescribed below are most advanced in the US, wherethe state has traditionally played a relatively minor rolein the provision of welfare, they are spreading morewidely, including to the key emerging markets ofBrazil, China, India and Russia.

“There is a trend for donors to

become more involved in their

donations. Philanthropy is

becoming a more important part

of donors’ lives.”

Susan Mackenzie, Director of Philanthropy UK, aleading source of advice to donors and aspiringdonors who want to give effectively, believes that theworld of UK philanthropy is in the midst of a seachange. “The biggest difference is a demographicone,” she says. “A tremendous amount of wealth hasbeen created over the past five years. Traditionally,most wealth in the UK was passed down thegenerations. Now it is mostly new wealth, and manyof those entrepreneurs have different priorities andways of engaging in philanthropy.”

One major change that Ms Mackenzie sees is thatdonors are more likely to give within their lifetimethan to leave a bequest, which has until recentlybeen the more traditional approach. “There is a trendfor donors to become more involved in theirdonations,” she says. “Philanthropy is becoming amore important part of donors’ lives. One of themain reasons is because they enjoy it. Donors getsatisfaction from mingling with their peers, meetinglike-minded people and, very importantly, seeing theimpact of their giving.”

Many donors with a background in business expectphilanthropic organisations to be run efficiently andwill measure performance by looking at outcomes.“Businesses and charities are not the same but theyboth need transparency and quality governance,”says Ms Mackenzie. She also believes that newlywealthy donors are more willing to supportinnovation in philanthropy. “You need to be able totake risks to find new ways of doing things,” sheexplains, “and donors are looking at more innovativeways of spending their money.”

Some donors will be willing to fund overheads, byinvesting in computer systems for example. Otherswill look to explore a broader range of financingoptions, such as loans and ‘quasi-equity’ (debt thathas equity characteristics), to fill gaps in thetraditional funding market.

“You need to be able to take risks

to find new ways of doing things

and donors are looking at more

innovative ways of spending

their money.”

Although there is still a general reluctance amongwealthy donors to speak publicly about theirphilanthropy, another trend is that donors arebecoming more willing to discuss and be open about their motivations. “This is partly because theysee others doing it,” says Ms Mackenzie, “but mainlyit is because it helps the causes that they aresupporting. Press coverage has undoubtedly had arole to play here.”

Good business: The rise of philanthropy

Conclusion

Entrepreneurship has long been recognised as thelifeblood of a successful economy. Countries that havethrived over the past few decades have, more often thannot, been those that have put in place the institutions tosupport entrepreneurs and attracted the investors andintermediaries that are necessary to turn ideas intosuccessful businesses.

Although countries vary widely in the degree to whichthey have enabled entrepreneurs to develop theircompanies, it is clear that there has been a generalimprovement in the global business environment.Improvements in the conditions for enterprise in manyregions of the world are leading to the ‘globalisation ofentrepreneurship’ with the most ambitious, successfulentrepreneurs thinking globally about potential marketsand opportunities.

While overall conditions for entrepreneurship have beenon an upwards trend for many years, recent events havechanged the landscape. Since August 2007, adeepening financial crisis has dramatically affected theshort-term prospects for entrepreneurship in manyregions of the world. Early-stage investment has slowedto a trickle, declining customer and business confidencehas dampened demand, and the environment for exitshas become highly unfavourable.

But despite these difficulties, there are strong groundsfor optimism about the current state ofentrepreneurship. It is in the nature of entrepreneurs touse their perseverance, risk-taking zeal and creativity toovercome obstacles and see opportunity where otherssee only adversity. Indeed, there is a strong argument tobe made that the current financial crisis, rather thanimpeding innovation, may actually encourage it.

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Written by the Economist Intelligence Unit (EIU) on behalfof Barclays Wealth, the report examines the motivations,characteristics and perceptions of entrepreneurs aroundthe world, with special emphasis on how they are dealingwith the challenges of today’s economic environment.

It is based on two main strands of research: a globalsurvey of more than 2,300 mass-affluent (with up to £1 million in investable assets), high net worth (with upto £10 million in investable assets) and ultra high net

worth individuals (with up to and in excess of £30million in investable assets) and a series of in-depthinterviews with experts on entrepreneurship. Amongthese 2,300 respondents, 960 were entrepreneurs.

Please note that in some cases percentages used in thereport may not equal 100, either because surveyparticipants were asked to select three choices orbecause neutral or ‘don’t know’ responses have notbeen included.

Methodology

The 2,300 respondents were recruited from EIUdatabases of individuals around the world. The survey was undertaken between March and April 2008 by the EIU.

Geography: Canada, the United Arab Emirates, HongKong, India, Monaco, Spain, Singapore, Switzerland, theUnited Kingdom and United States were eachrepresented by 100 respondents. Additionalrespondents were generated from elsewhere in the

world (30 per cent North America; 30 per cent Europe;30 per cent Asia-Pacific; 5 per cent Latin America; 3 percent Middle East; 2 per cent Africa).

Net worth: 40 per cent between £500,000 and £1million in investable assets; 40 per cent between £1million to £10 million; 10 per cent between £10 million to£20 million; and 10 per cent have more than £30 million.More than 4 0 per cent of respondents are entrepreneurs.

Survey demographic

Legal noteWhilst every effort has been taken to verify theaccuracy of this information, neither the EconomistIntelligence Unit Ltd. nor Barclays Wealth can acceptany responsibility or liability for reliance by any personon this report or any of the information, opinions orconclusions set out in the report.

This document is intended solely for informationalpurposes, and is not intended to be a solicitation oroffer, or recommendation to acquire or dispose of anyinvestment or to engage in any other transaction, or toprovide any investment advice or service.

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