Having spent the last ten years working hard to establish a successful internet-based business, I have a first-hand experience of the challenges that small and medium-sized enterprises (SMEs) face expanding their business. And believe me, it’s not easy. From generating and developing the initial idea, to raising the finance and then getting people to buy, it’s an uphill battle.
So I have complete sympathy with other technology entrepreneurs who, having done the hard work, choose to sell out for an easier life. At the same time, however, part of me is left wondering whether we should be looking at a different approach and doing more to protect the long term future of the UK technology industry.
After all, apart from Autonomy, which recently sold out to HP, Sage is now the only software company in the FTSE 100 and one of only a few UK technology brands left which is recognised on the world stage.
With technology such a key component of the knowledge economy as well as a vital contributor to export, productivity and employment growth, why is it that we can’t seem to develop UK technology businesses beyond a certain size?
Pointing the Finger
It would be easy to point the finger at any one of a number of areas including the short term horizons of UK venture capitalists, the difficulties of expanding into larger geographies such as North America, lack of support from government or indeed the limited ambition of our technology companies, but the truth is that the answer lies in a combination of the above.
UK venture capitalists start with the premise of a 5 to 7 year exit, so there’s no surprise that most VC funded companies fail to remain independent much beyond that point. I guess the question we need to ask is whether they can be encouraged to nurture their investments into a more mature phase of growth or indeed whether more should be done to help early stage companies self-finance in the first place.
Expanding into larger geographic territories, although significant, is far less daunting or costly than in the past, because with eCommerce it is now much easier to trade internationally. What is difficult however, is achieving considerable scale this way without the budget or a major distribution partner willing to take on the investment risk.
Whilst there’s a decent amount of support and assistance for international trade provided by organisations like UKTI, there’s still a large gap in most SME’s knowledge of how to fully exploit the potential of international distribution channels which restricts growth and possibly encourages smaller UK IT businesses to sell to seek the comfort of a larger overseas buyer to develop their ambitions.
Which Brings Us to the Question of Government Assistance
The government have the ability through their taxation, spending and subsidisation policies, to shape the development of the economy. Whilst they should not be expected to keep dying industries alive, they should help to support and nurture the sectors of the future and along with it employment and growth opportunities that follow.
In many ways the UK government have started to wake up to the importance of their role in stimulating the UK technology sector. Over the last 18 months we have seen a number of announcements to support the channelling of more government IT spend to the SME community along with incentives in the form of R&D tax credits and lower corporation tax on qualifying patent protected revenue.
All of this would be very positive were it not for the fact that it doesn’t alone solve the problem of how to encourage UK technology companies to step up to the next level.
To do that we need a change of mind-set and greater recognition of the value that smaller technology businesses can deliver. After all, helping businesses to grow, export more and create new jobs will be vital to creating sustainable growth in the years to come.