Top business schools now offer cash and facilities to help their budding Bransons to get off the ground, disproving the adage 'Those who can do, those who can't teach'. Michael Wale reports.
It's a popular myth in Britain that the average entrepreneur is a maverick who avoided school, university and a conventional career to launch an off-the-wall business from a phone box. Success came only with a lot of luck and a little bending of the rules.
Reality shows that this is rarely the case. Most entrepreneurs have an extensive education and plan their business start-ups with care and precision. And now they can go one step further, by launching their businesses with the help and financial support of a business college or university.
At London Business School, which has 1,000 students, 80% of them from outside the UK, the most popular courses cover entrepreneurship in one way or another. In return, the school has targeted investment from its own venture funds towards 24 start-ups in the past five years. The venture capitalist firm Sussex Place Ventures, which works closely with LBS, as well as King's College London and UCL, has invested amounts ranging from pounds 50,000 to pounds 500,000 in LBS start-ups. Its managing director is Professor John Bates, who is also director of London Business School's Foundation for Entrepreneurial Management.
According to Bates, the funding is not the most important contribution to budding entrepreneurs. He outlines the advantages that LBS can provide if a student wants to set up his or her own company: 'Above all, advice. We've got six people teaching in the entrepreneur group here. We've all been out there, done that. We can advise you what not to do, which is very important. I get five or six business plans a week from people who have left in the past two to 10 years. I'm supportive but frank.' He nods in the direction of his large waste paper basket.
By imposing tough criteria on which business plans get the go-ahead, LBS has a failure rate of almost nil for its start-ups. The advantages to the school of providing start-up advice and facilities is that they attracts students who'd like a formal business education but don't necessarily want to work for a large corporation.
Networking is another advantage that LBS offers would-be entrepreneurs. The school makes good use of its 16,000 alumni, in particular the Enterprise 100 group, a band of successful entrepreneurs who meet four times a year to hear presentations from those who've got past Bates and his team's rigorous questioning.
It is during the question-and-answer session and at the reception afterwards, when business cards are exchanged and meet- ings set up, that new strategic partnerships will be forged. That is exactly what happened in March this year to Square Pie, a food enterprise created by Martin Dewey, with Denis Anscomb as finance director. Anscomb had left LBS in 2001 with a Masters in Finance and had been to an entrepreneurship summer school under Bates, and also followed some entrepreneurial finance courses.
When he co-presented with Dewey to Enterprise 100, the partners were looking for funding of pounds 400,000. He explains his role in Square Pie. 'I worked on the business plan and financial modelling for the emerging company. Martin had already started production when we joined up, but needed finance. I registered the business with the Enterprise Initiative Scheme, a Government tax break, and did other things I had been taught on the summer course at LBS. It's very helpful to have been schooled in entrepreneurship,' he adds. 'LBS is in a strong position to give you knowledge and contacts.'
Dewey's idea was to provide customers with lunchtime food of a higher quality than the average sandwich. His gourmet pies boast such uppercrust fillings as spicy chickpea and tomato, and Thai chicken green curry (Square Pie offers the traditional steak variety, too). The company's kitchen and offices are in Hackney, east London. The pies are targeted at the more discerning consumer and sold from an outlet in Spitalfields. Two more shops are planned, and the company hopes to supply the food industry.
LBS also provides workspace, including IT equipment, at a competitive rent. These offices are next door to the school, so that help is on hand throughout the incubation period (the building became known as The Incubator).
LBS isn't the only institution to support start-ups directly. Henley Management College and Cranfield University offer a similar service. And over at Imperial College, London, on the 12th floor of the Electrical Engineering building, you find Innovations and its MD Susan Searle. This is Imperial's own spin-out organisation.
It's a very different set-up from that of LBS, dealing only with hi-tech start-ups. Says Searle, who studied chemistry at Oxford before going into industry: 'We're pro-active. We go looking for ideas in our four faculties: engineering, medicine, life sciences and physical science. We assess the idea of an academic, and we have an understanding of the value of the intellectual property and commercial potential that an academic would not have. We then find a company already out there and licence the idea to it. Or we can form a business ourselves around a technology.'
Spin-out projects are managed by an Innovations project officer, who works with the academics to find the right people and resources, prepare a business plan, convince Imperial that the venture is viable and get the firm operating. Says Searle: 'We're a dating agency really, linking the right people at the right time.'
Not just a dating agency, but a money-spinner too. Last year, Innovations handed pounds 5 million back to the college, the proceeds from past successes. One of them was Ceres Power, whose chairman Philip Holbeche is an LBS alumnus. Ceres is marketing a breakthrough fuel cell that can convert natural gas or hydrogen directly into electricity. This will enable households not on the grid to have their own electricity supply from a noiseless, odourless and efficient small source. It might ultimately be taken up as a source of power by the utility companies. The idea might have taken years to get off the ground in the outside world, but with the support of Innovations it's getting a head start.
Professor Brian Steele, formerly the leading academic researcher at Imperial, is now technology director at Ceres. Inno- vations remains active within the company and recently brought in Peter Bance, who worked with a corporate ventures group as CEO. Innovations helped Ceres raise pounds 4.2 million as seed funding, and it retains a 13% stake in the business.
There are other benefits to starting up through Imperial. Researchers can get together and pool resources and knowledge. Rod Richards, CEO of Microscience, an Imperial College spin-out that researches vaccines, sees this as a key point. 'The advantage of working with Innovations is that quite often people within Imperial College come up with similar things, so we can all be joined up. That includes engineering and IT.
'A number of collaborations are going on at this moment with vaccines and with biotechnology,' he continues. 'You get very large sums of money from seed to end-point. But the egg that the golden goose lays can be very much more valuable in the end.'
For London Business School, one of the most successful recent start-ups has been Iglu.com, a company set up by Richard Downs, who graduated in 1998. Iglu sells skiing holidays, an idea that sprung from Downs' own love of the activity. The company is now branching out into villa and other holiday opportunities. But skiing remains its speciality, and Downs hires only people in love with the sport. His unique selling point was that users logging onto the web site would then get personal service and advice from an enthusiast over the phone. The company is already showing its first small profit - no small feat for a dot.com start-up in today's climate, especially in the overcrowded travel sector.
As well as winning the graduate-of-the-year award, Downs' business plan won him a European award at LBS. He had been part of the entrepreneur course, and Sussex Place Ventures were not slow in seed-funding him with pounds 150,000, in return for a 5% stake. For the first 18 months of Iglu's existence, when Downs was setting up a web site and luring his first 1,000 customers, he took office space in the LBS Incubator. At one point he went back to Enterprise 100 for more funding and received pounds 3 million. Today Iglu.com employs 70 at its offices in the 'cheap end of Wimbledon', south London.
Success stories like Square Pie, Ceres Power and Iglu.com suggest that a fledgling business can get a significant head start by collaborating with a university or business, particularly in the current gloomy start-up market. For motivated self-starters who like to feel part of a supportive establishment, it's certainly worth a try. Mavericks need not apply.
YOUR DRIVE PLUS THEIR KNOWHOW
Business school incubators won't accept any old business plan - you need to show that you know your stuff. Keep the following in mind.
- You'll get a thorough grilling from the business school and any potential investors. They want reassurance that you've really thought about what you're doing.
- Be flexible. Your business plan might look great to you, but your supervisors will spot the deficiencies and expect you to make the necessary changes before you proceed.
- Consider the timing of your proposal. Just because you've finished an MBA course and are ready to start work doesn't mean that the market's ready for your offering.
- Be prepared for the long haul. If the business school advisers are bringing the knowledge and the funding, you're bringing the drive, dedication and energy.
- Think about the long-term future of your company. Like any potential investor, business schools want to be sure your firm has the potential to grow and make good returns.