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In the eye of the storm - The reality for startups & business after the EU vote

3/7/2016

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In the two posts I wrote before and straight after the UK EU referendum I offered the same advice to startups and established businesses alike. Focus on your strategy and priorities. Stay calm amid the turmoil and noise. This is in line with the Lean In view expressed by 58 of the UK’s top Tech entrepreneurs this week. 
 
Since the result was announced there has been plenty of political and market confusion. Trade, investment, talent and foreign exchange are topics of heated debate. Yet the reality remains that leaving the EU will make a marginal difference to UK business. Your team, your customers and your suppliers. All count for much more than anything the UK Government or the EU choose to do.
 
So I thought it would be worth sharing some perspectives. Grounding the key issues in reality. And cutting out alarmism and hype. 
 
Most of this is written from a startup point of view. But applies equally to any business. Instead of rushing headlong into change keep these points in mind.

Strategy and leadership - Keep your focus and priorities

​There is a predictable flood of commentary and analysis on the implications of the EU vote for business. I have seen some pieces that suggest now is the time to review your strategy. For example in an otherwise sensible article After the Referendum Steve Turner recommends a review and update of your strategy and objectives.
 
I can’t agree with this point of view. Too much is unknown. Gather information. Listen to different points of view. But don’t make any hard decisions you don’t have to make. A change in strategy now is as likely to be wrong as right. Be patient and don’t rush off in a new direction when the road is shrouded by fog in all directions.

In opportunity the only constant is change

​Change creates opportunity for business. Even the worst circumstances (war, revolution etc) are catalysts for the entrepreneurial spirit. The best way to seize the opportunities of change is innovation. 
 
By their nature, startups are geared to this mode. The best course for an existing business is not to second guess existing strategy. It is to improve capacity for innovation. This means looking at culture. And assessing how you open up to new ideas. 

Don't let FX damage your international ambitions

The biggest shift so far has been in currency markets. The pound has hit a 30 year low against the US dollar. Many people are advising that now is the time to address FX exposure. Remember:
 
  • With the current level of volatility risk is high. This means any FX protection will be expensive. If you are not already covered, make sure it is worth it before committing to anything.
  • For UK based business, the fall in the pound creates a price advantage in key markets, especially the US. You could use this as a buffer against other risks. Or it could provide an opportunity to for aggressive competition.
  • Business selling into the UK are in the reverse position. Yet the UK is still an attractive market (see below). The challenge here is to innovate on value to overcome the adverse price changes.

Trade deals, single markets and the real world

​Politicians and the media here in the UK obsess over national and supra national trade deals. At a macro level this matters. For any individual business it is a marginal factor. Because:
 
  • A high proportion of UK, EU and world trade carries on without any bi-lateral agreement. The UK may lose some element of its EU position at some future time. But this is a small corner of the trade spectrum.
  • Most major trading relationships are governed by WTO rules. This limits the extent to which the EU or anyone else can erect barriers to trade with the UK. A Smoot-Hawley moment of disaster is almost impossible today.
  • And the main reason? The biggest factors governing trade are relationships between businesses and their customers or suppliers. Value, design, product quality, brand, reputation etc. Define your competitive advantage. And use it to overcome any obstacle created by tariffs and terms of trade.
  • And one tech specific point. The digital single market is pretty much a figment of the EU’s imagination. Progress is glacial. Tech startups and global giants are not operating in a single market today so have little to lose.  
 
Do not allow the noise about trade treaties that will continue for years to come to distract you. If anything for a UK based business now is the time to step up plans for international growth. The currency offers a price advantage in key markets. Win customers now in European markets. And aim to build loyalty that survives any trade barriers. 
 
And don’t forget the optimistic case for leaving the EU. Various leave campaigners presented a vision of the UK much more active in trade. Opening up to global markets in India, Africa and beyond. Left to our politicians this will remain a fantasy. Only positive business leadership can make this happen.

Prvacy, competition and regulation

​There is also a possibility that the EU will put itself at a competitive disadvantage in digital. The current commissioner for competition, Margrethe Vestager, is well known for pursuing cases against Google and others.
 
Without the UK as a counter balance EU action against tech giants could intensify. (Acceleration doesn’t really happen in Brussels). A similar protectionist outlook could affect data privacy. And other important areas of regulation. The UK’s days as the tech capital of Europe may not be over. 

The war for talent

​I am not sure how war became a preferred metaphor in recruitment. Its an odd way to describe the challenge of finding and hiring the best people for your team. Nor does it help address the challenge that businesses in the UK may face. In particular if the country takes a strong anti immigration turn post leaving the EU.
 
I don’t have any simple answers. To combat this risk business leaders need to think as if throwing a welcome party not fighting a battle. So two thoughts:
 
  • Hiring the best people is hard.  You must find the right skills, potential, experience and fit with your team. No matter the economic or labour market conditions this is tough. Always. Yet it is as difficult for individuals to find the right team as it is for companies to find the best person. Keep looking and keep being honest and open about what you have to offer.
The UK is still a great place for people to live and work. Vibrant cities and culture. High standards of public services. Freedom, democracy and the rule of law. All will still exist. The combination is rare. Any UK based business still has a lot to offer.

But the EU gives startups a lot of money?

​The financial mechanisms of the EU are opaque. The basic principle is that countries contribute amounts to the budget. Based on the size and success of their economies. This is then distributed through a number of funds and subsidies. At the end the richest countries redistribute money to the poorest. So Germany and the Uk are the biggest net payers.
 
But lots of people and businesses in the UK still benefit from the money that is distributed. Two areas are of significant interest to business. In particular startups and innovative companies. Business support provided through the European Regional Development Fund (ERDF) and R&D funding.
 
Once the UK leaves the EU, it will be open to the UK Government to spend this money in any way it chooses. Including the exact same use as the present arrangements. In the short term this will be the default option. For lack of time to think up anything else as much as any other reason.
 
Over time the UK is bound to diverge from the EU policy. This might be good, bad or indifferent to the various interests involved. 
 
If you run a business that uses public funds, such as investment from Scottish Investment Bank or various grants awarded by Scottish Enterprise, then you need to do 2 things. Understand if any of this money originates from ERDF funds. (Hint: Most Scottish Enterprise funding does). And keep a close watch so that you can react to any policy changes in good time.

Plus ca change

​We sit in the eye of the storm right now. When the tempest is at its fiercest good strategy, leadership and decisions matter. Not the ins and outs of resolving the EU situation.
 
The keys to success will be calm thinking and innovation. Make decisions based on the best opportunities for your business. Don’t wait for Government to open up new opportunities. But don’t rush to change for the sake of it either. 
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©Sunstone Communication Ltd 2016
  • Home
    • Tartan in Tallinn
  • Blog
  • Free Downloads
    • Sunstone Financial Information Survey 2017
    • Sunstone SaaS SWOT Analysis Tool
    • The Book of Business Plan Ephemera 2014
    • SMB SaaS Unit Economics Calculator
    • How technology is killing the CIO
  • About
    • Kenny Fraser
    • The Legend
    • Community >
      • Mallzee
      • Appointedd
      • SaaS Group
  • Financial Model