Young entrepreneurs have self-belief, energy and enthusiasm. Yet, with no track record, how can they convince bankers to back them?
Some people seem to be born with business in their blood. The likes of Alan Sugar and Richard Branson were already making money at an age when most kids are too busy worrying about acne. Nowadays, there seems to be an endless stream of young men and women in too much of a hurry to make their name in business to find out about their field by working for somebody else.
Yet, while Sugar and Branson, the Pizza-Express pair Luke Johnson and Hugh Osmond and Carphone Warehouse founder Charles Dunstone all made their names as well as their fortunes before they were 30, countless others discovered the downside of striking out on their own with ideas and businesses that never worked. Some try, try and try again and eventually make it big. For others, there are only mounting debts. Even Henry Ford went bust three times before going on to amass his fortune. The question is whether Ford and others who struggled in their early years should have waited before launching their solo careers. Is it possible to be too young to start up in business?
Most bankers would have little hesitation in answering 'yes' to that question. Financiers rate experience. They want to back people with a track record in more than the playground. Venture capitalists don't generally want to hand their money over to someone who wasn't even born when they left school. Even the early thirties is pushing it a bit for some investors.
This attitude to young enterprise is fiercely criticised by others who work with young entrepreneurs and those who believe old-fashioned ideas about lending are central to Britain's damaging 'big business' culture.
People such as Richard Street, director of the Prince's Youth Business Trust, and Chris Humphries, director of the British Chambers of Commerce, argue that young people should at least be given the chance to fail - and they see an unsuccessful venture in terms of gaining experience rather than failure, a view recently endorsed by Gordon Brown, the chancellor.
Youthfulness carries intrinsic advantages. All entrepreneurs need self-belief, energy and enthusiasm - characteristics usually found in abundance in young people. Someone starting up in business also needs to be able to weather some difficult times, financially, as well as emotionally.
Someone in their twenties, with no family commitment or mortgage, is arguably in a better position to soldier on than a 45-year-old with children to educate and a home on the line.
Complete inexperience is an unlikely starting point for success but the basics of running a business can be picked up in a few years after leaving school or university. And additional expertise can be garnered from advisers or non-executive directors. That was the successful prescription used by Richard Thompson. The 31-year-old admits that there have been times in his 15-year business life when it looked as though he was not going to survive. The founder of EMS, a 'field marketing' company whose staff help sell electronic equipment in retail stores, set up his first business at 19 after a few years of picking up a pay cheque from somebody else.
'I haven't looked back since,' he says, with the kind of self-confidence that has clearly been one of the keys to his success.
Thompson started selling printer ribbons and similar computer consumables, then moved into peripherals and finally went the whole hog and set up a computer dealership, which supplies large companies with their desktop needs. It hasn't all been plain sailing - he went into retailing at the height of the last recession and says the business only survived because of support from IBM. But he doesn't like to dwell on the difficulties, preferring to focus on how to keep ahead, a trait he believes is common to all entrepreneurs.
'What we all have in common is selective memory loss. We're very forward-looking, so we are only really interested in tomorrow, not yesterday.
I'm a positive person, too excited about tomorrow to worry too much. But yes, at times, it was a nightmare.' He believes his youthfulness probably helped him survive, even if the inexperience that went hand-in-hand might have added to his business problems. 'If I knew then what I know now, I would probably have done it differently. But one of the benefits of youth is that, at times, you don't realise how vulnerable the business is - if you did you probably wouldn't have done it in the first place.
Naivety is useful - and quite necessary for an entrepreneur.'
Then there is the energy and self-belief that fuels many new businesses but is in greater abundance in someone like Thompson. 'I made up for lack of experience with enthusiasm and energy. When you're 19, you think you can walk on water.' At that age, people are also probably more prepared to pull a fast one than they might be later in life.
Charles Saatchi notoriously put on an elaborate performance to convince doubting prospects that he really did own a functioning advertising agency.
Thompson admits to having done something similar - persuading the other tenants in his business centre to act the part of staff so that customers would believe he occupied the whole place rather than one tiny section of the managed space.
It would probably be wrong to suggest that entrepreneurs' morals are more fluid than others but Fraser Hay of Health Scope Direct also has a tiny skeleton in his cupboard. The origins of his natural cosmetics company lie in the market research he was doing as a 28-year-old consultant. He came across algae - seaweed - as an ingredient in skin treatments and became so excited by the prospects for it that he abandoned his client to do the business himself. 'I felt natural health products were right where the internet was in the early 1990s. Seaweed has been used for thousands of years but, as a cosmetics ingredient, it is still very new,' he says.
His analysis seems to have been right - Health Scope Direct now has 10,000 customers in 13 countries and has just signed a deal to be on TV shopping shows across Europe. Hay is about to buy the cosmetics company he was consulting for at the time he hit on his big idea. The idea is crucial to any new business but the best inspiration is no good without finance.
And banks, notoriously reluctant to lend money to interested entrepreneurs, are even less keen to back such mavericks when they are still learners in the conventional world of work. Hay did not find it easy, despite his having strong arguments for backing his judgment, including in-depth market research. 'I spoke to three banks but they didn't want to help. There was a reluctance to back a business start-up even though I had 26 pages of market research.' Was youth a problem? 'Absolutely. Banks only want to speak to young people about a car loan.'
In the end, Hay opened his bank account with just £10, confident that he would have good cash-flow because he was setting up a mail-order operation where customers have to stump up the money when ordering the goods.
Even mail order needs some working capital, however, which is where the banks were supposed to come in. In the end, his financial break came from the Scottish Youth Biz Trust - the version of the Prince's Trust operating north of the border - which put up £5,000. That helped him to get further finance and he was on his way.
He is full of praise for the staff at the Trust. 'They were most helpful.
They were completely open-minded and patient and prepared to look at completely off-the-wall ideas, even though I didn't have all the answers to all their questions. After talking to them, I had a better under-standing of what I should be looking for. That's the problem with most people trying to start a business, especially young people: they don't know what questions to ask.'
Street, at the Prince's Youth Business Trust, believes the 'care and attention' lavished by his organisation on young entrepreneurs explains the high survival rate of the people it backs. As many as 60% of the businesses the Trust helps to set up are still going after three years - an impressive figure for any start-ups and especially for these young people, who have to have been turned down by everybody else first. 'If you have got somebody in the first steps of setting up a business, you need to nurture them,' Street says.
'But the banks genuinely can't afford the care and attention that's needed.'
The Trust is ready to recruit anybody between the ages of 18 and 30 who doesn't jump the usual financial hurdles. It provides a trainer to help the applicant develop a proper business plan and make an application to one of its local boards. Around half of the serious applications are accepted, an average of 15 businesses a day. The successful ones get a small amount of cash - averaging £2,500 - on understanding terms. And there may be grants for a test marketing exercise. With that start, applicants can often then pass the loan scoring systems used by the banks and secure additional finance.
But Street believes the most important aspect of the Trust's support is its network of professionals available for advice - free, on a limited basis. 'People tend to think that legal advice is too expensive so they just muddle through. But we can give them a free opinion. Then they know the extent of the problem and if they really have to pay for legal help.' That can be crucial for specific issues: more generally, the support amounts to mentoring, which he says has been shown to be a powerful force in the Trust's 12-year history. 'It's a very scary thing, setting up a business.
You can give young people training in all the necessary disciplines but it's never the same as putting them next to a business person - someone, not a competitor, who's on their side. It helps get rid of the fear.'
Of course, there are failures - cash-flow problems are no easier for a trust-backed venture than for any other start-up. And many businesses are what Street calls 'lifestyle' operations, which might employ several family members in something such as aromatherapy but seldom grow much beyond ground level. On the other hand, the top 100 start-ups that the Trust has backed now have a collective turnover of £100 million, illustrating the potential in young people and their ideas.
Street believes the potential is much greater than that, because there are many more young people bursting to get into business than the Trust can help. 'We're nowhere near saturating the market,' he says.
The market could and should be much bigger, according to the Trust's director and others who believe Britain still doesn't value enterprise as much as it should. 'It just isn't in the culture,' Street says. 'We don't regard self-employment as a proper job. And we still talk of failure when somebody ceases trading. It can be traumatic but it isn't entirely negative. The employability of somebody who has been through the experience of setting up a business, even if it didn't survive, is much better than before. We need to try to revise the stigma of failure.' This is music to the ears of Humphries, of the British Chambers of Commerce, who is trying to put together a broad-based, sustained campaign on this very subject. 'We have an anti-enterprise culture,' he says. 'Young people have their entrepreneurial spirit knocked out of them by schools. Among young people, there is an improving situation but parents, teachers, careers' advisers and universities don't encourage it. And if you knock it out of them early, it is very hard to get back to it later.'
British culture is not entirely homogeneous, however, and there are pockets of greater enterprise awareness, notably in the Asian community. It is remarkable how many young Asian entrepreneurs there are. Humphries cites the 21-year-old Reuben Singh, founder of the fashion chain, Miss Attitude.
But he also cites him as an example of the bias against youth in the financial world. 'In three years he had gone from nothing to a turnover of £150 million with 700 staff,' Humphries says. 'He started with his own money but, when he went to the banks for backing, they said they liked the idea but there was no way they would back such a young management team. There is a set of expectations in the UK about who you provide money to. The financial institutions are very conservative.'
You wouldn't expect bankers to agree with that analysis and Barclays, in particular, is busy trying to escape the anti-youth image. Its leasing arm, Barclays Mercantile, has recruited several entrepreneurs who have already been successful from early on to find a clutch of other young high-achievers in its '30 under 30' competition. The judges include 25-year-old Ajaz Ahmed of AKQA, a new media agency, and Paul Cambridge, who took charge of the Joe Bloggs clothing offshoot, Major Minors, when he was just 24. Some lenders have had their fingers burned in the past. They remember entrepreneurs such as Sophie Mirman (who also happens to be one of judges), who crashed to earth with Sock Shop before moving on to the children's wear store, Trotters.
Patrick Sheehan defends the financial sector's attitude to young entrepreneurs.
As head of the technology group at 3i, he has invested in some of the venture capital outfit's younger customers. People such as Ab Banerjee, who founded the video business, Raw Communications, as a 3i-backed buy-out from the media conglomerate, Pearson. Or Michael Adams, now on his second business after selling his technology-based fund management company, Adam Harding & Lueck.
'I don't think we're ageist,' claims Sheehan, while admitting that a track record is a pretty vital ingredient so far as venture capitalists are concerned. 'We like to back people who have a demonstrable track record and have the management ability to fulfil their plans.' He points out that 3i wants entrepreneurs who can let go, sharing the responsibility with others so that the business can grow in a controlled way without relying on one individual. He recognises that, by contrast, many older people find it more difficult to share the load when they finally get off the ground with an idea that might have been in their heads for years.
As a rule he would not expect somebody to have the necessary experience to start a significant business until they were at least in their late thirties. Yet he also acknowledges that younger people have an advantage when it comes to young markets - such as fashion, technology and entertainment.
As far as he is concerned, the necessary experience could be provided by another member of the management team.
'You tend to see more young people in the new technology and entertainment areas. What is attractive to us there is the dynamism and the knowledge of the market. Coupled with somebody else's experience, that is quite attractive.' This combination also appeals to Hay in Aberdeenshire but he recognises that it might not be as easy as it sounds to build such a management team.
'I am very conscious of having to cope with the rapid growth. I was starting to crack up but I've taken a holiday and started building a team, with specialists in functions such as finance and exporting. It would be good to have the advice and experience of somebody who has been doing it for 20 years but I'd prefer to work with like-minded individuals. And I am aware of the problems of a cocky 30-year-old trying to tell a guy of 50 what to do.'
Thompson of EMS reckons that the solution lies in networking, through the chief executives 'club', Tec International, friends, colleagues and even customers. 'I have had a good accountant. In fact, he has been much more than an accountant - a very solid mentor. I also had a very good friend who also started a business at the same time as me. He was a very good sounding board - so many of our experiences were similar,' says Thompson.
'I have learned so much from clients and suppliers, too. I've learnt more about business from clients than from anyone.' Ironically, he adds: 'I only respect people who have been there and done it. Tec has been really good - sharing problems with chief executives from all sorts of businesses.
For those over 30, it is nice to know that age has some uses. And if you still harbour ambitions to join the entrepreneurial game, don't despair - Colonel Sanders didn't found Kentucky Fried Chicken until after he had retired.