Tag Archives: Business

Where to be an entrepreneur in Europe? Not France!

dead duck

A French Entrepreneur (Photo credit: Dave Malkoff)

A paper by academics Nadine Levratto and Evelyne Serverin, “Become Independent! The Paradoxical Constraints of France’s Autoentrepreneur Regime” (available here) shows the failure of this programme to generate entrepreneurial behaviours.

What went wrong, and why should other member states not copy France?

Since January 2009, when the autoentrepreneur category of working was first introduced, over 550,000 people have registered. They system differs from the also complex Regime Reel in France by taxing autoentrepeneurs on gross turnover (up to the allowed ceiling of €32100, at the rate of between 12 and 21.3%) rather than on revenue (turnover less expenses). People in this category discharge all their taxes by paying this amount, but do not get to claim expenses and do not need to do VAT accounting. In France, the very high national debt is driving lawmakers toward a regime that is levying the regressive social charges on everything from the first euro (!); this is evidence more of desperation than leadership — that entrepreneurs have been captured by this is not surprising.

Almost 50% of autoentrepreneurs in France had an annual turnover of zero, while 15% had a turnover of less than €1000. Only 500 autoentrepreneurs exceeded the upper threshold.

This regime fails because it is not about being entrepreneurial, but about collecting tax and creating bureaucratic barriers to success: more specifically:

  • autoentreprenurs can’t hire anyone — the authors speak of them as ‘lonesome’, working out their entrepreneurial dream on their own, forbidden to collaborate with others, even hire an assistant
  • they can’t recycle capital to build the business as it taxed away at the turnover level as there is no recognition of the extraordinary expenses of business startups
  • because of the structure of business, they are a bad risk for banks to lend to
  • two autoentpreneurs can’t collaborate as tax authorities would view them as a company
  • there is an excessive concern for employment law and insufficient understanding that entrepreneurial behaviours are not about being secure, but about risk, and therefore has little to do with employment law itself.

There should be no surprise that the system failed and people outside France can say simply on this basis, and with some justification, that the French don’t have a word for ‘entrepreneur’ as clearly they don’t seem to understand what the word means. Indeed, the authors note that the programme has been such a dismal failure, that the French government is rebranding it as better for second incomes, than entrepreneurialism.

What we need is an analysis of these failing efforts at entrepreneurialism by member states, certainly as a warning to others, but more importantly to establish a general understanding of how entrepreneurialism should be treated within member states from the perspective of taxation and law.

If I were forum-shopping for a member state to pursue my entrepreneurial dreams, I would be looking for a country with light-touch taxation, and flexible employment rules.  Start-ups have real problems with cash flow and locking them into high social charges and rigid employment laws is counterproductive.

What is worrying is that other member states, according the authors, have copied this regime: Portugal (recibos verdes) and Poland (samozatrudnierie). Others may be thinking about it. We should all be very afraid of this.

If you are entrepreneurial or have experience in specific member states, please email or comment. Which do you think is the best country in Europe to start a business or be entrepreneurial?

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Complexity and Decision-making

Did this work?

Did this work?

We are learning new things about how we make choices and decisions. The work of people like George Loewenstein, Robert Cialdini and Daniel Kahneman have introduced us to new thinking linking psychology and economic behaviour. This has translated into the health sector in a number of ways, including recent reports from both the UK and French governments on how to use the research from neurosciences and behaviour in public health.

This means that corporate strategists in the pharmaceutical and medical device industries as well as public policy makers will need to rethink many of the underlying assumptions driving their strategies, as simply put: there is a better way.

Coupled with our understanding of the complexity of regulated health markets, strategic thinking will need to look anew at market drivers, the logic underlying the assumptions of who key customers are, and the consequences changes in these assumptions have for commercial priorities.

For example: Novo Nordisk rethought who its customers were for insulin, and with new delivery technology, see the diabetic not the doctor as the customer. Bayer developed a little gadget to encourage children to maintain their insulin levels by aligning this health objective with Nintendo games.

Yet, device companies continue to target doctors as key decision-makers with technologies for patient use. The results are plain to see and most people would rightly reject such poorly designed equipment in their homes. The major device companies persist, despite falling market performance.

The pharmaceutical industry in prescription regulated markets continue to target doctors with a field force, much like door-to-door salespeople, when the real determinants of medicines use lie in patient behaviour. While ‘share of noise’ seems to be the reason for large sales forces, improving the calibration of their market objectives with new learning on decision-making opens up new avenues. In emerging markets, retail medicines are just like FMCGs. The challenge for the industry is how to market what is in effect a premium product (it costs more to develop a new medicine than all the developmental research (if any) undertaken by the luxury goods industries), without marketing “sickness”.

Health IT Industry Canada/UK

Mike recently chaired an event for UK companies to explore the opportunities for health information technology companies in Canada. Sponsored by UK Trade and Investment, GLE London, and the Canadian High Commission, the event attracted a group of firms with expertise in this sector, to hear presentations from EMIS and RIM and also learn about R&D tax credits, FP7 opportunities and partnering opportunities that are often not exploited.

Opportunities abound in Canada as it seeks to enhance the uptake of information technology in healthcare. Canadian physicians have a low adoption rate of office-based clinical systems, while connectivity between hospitals and primary care is not well developed. The focus in Canada has seen public investment, mainly linked to InfoWay, being poured into hospitals systems, with very little actually where the bulk of clinical encounters occur, namely in primary care. Slow adoption of electronic prescribing systems, coupled with often weak and poorly defined provincial electronic health record implementation strategies suggest that market entry opportunities lie in bringing order out of chaos and demonstrating clear benefits for clinician adoption.  The companies attending this event had that experience and could bring this level of structure to the market.

The partitioning of health markets into provincial systems means market entry strategies must pay particular attention to provincial characteristics and objectives, and incentives, such as tax credits, but also links to provincial infrastructure and innovation opportunities. There are pros and cons to each provincial system from a market entry strategy where the Alberta system has clearly centralised to Ontario with a purchaser/provider split and major reform underway in Quebec. There are also opportunities in specific market segments such as military health, prison health, workplace health and aboriginal health, which are frequently ignored as firms tend to focus on the publicly funded system as a whole and ignore these specific areas of opportunity and which offer market entry. Working with smaller Maritime provinces for instance offers scalable opportunities.

In addition, Canada’s position next to the US offers firms access through NAFTA, to take advantage of the huge stimulus in healthcare technology that is linked to health reform in the US; providers are early adopters and invest in technologies, including clinical systems so there are market-based opportunities around, for instance, clinical decision-support systems.

My own presentation focused on the opportunities working with Canadian academic health science centres [AHSC], which anchor provincial specialist service delivery, research and professional training. Since they combine research, teaching and service delivery, they offer partnering opportunities across a wide range of areas, and have sufficient commercial freedom to engage in alpha or beta partnering as well co-investment with start-ups. While many are still tied to the traditional technology transfer or licensing model, other ways of structuring deals are available.  They are valuable sources of new technologies for early stage investment, and with a relatively small early stage health investment community, the AHSCs are always looking for new people to have commercial discussions with. There is considerable interest by the federal government to ensure that early stage firms do stay in Canada so jobs and opportunities stay domestic, rather than being exported mainly to the US. But risk aversion and apparent shortage of second round financing sees many firms find their future with US investors. The removal, though, of disincentives in the income tax act which made life overly complicated for investors (similar to disincentives used in Australia) by the current government may encourage investors to feel more relaxed about the income tax regime.

Appointments in Quangoland

Photograph of Brittania statue, taken 13th Jun...

What would she do?

One of the great mysteries of the modern world is how to get appointed to the board of a quango.

I have also wondered whether the concerns about the effectiveness or not of quangos may lie in the criteria used to identify the types of people to run or govern quangos. To that end, would the public and political perceptions be different if there were greater confidence that quangos were both purposeful AND engaged the right people to sit on their boards and lead their management teams.

When I was doing work on revalidation of doctors (in the UK), following the tragic baby deaths scandal at an NHS hospital, I observed to medical colleagues that if they didn’t get their medical house in order they would be seen as unable to govern their profession and would lose their autonomy and control of the GMC: in which case, the chair of the General Medical Council would be lay chair, and they would be outnumbered by lay members. I observed that I might be the chair of the GMC since I knew a fair bit about what doctors do, which put the issue quite starkly.

The real issue is whether the criteria used to select candidates for quangos by appointing bodies fully engages the widest possible talent pool, or does it favour certain types of people, who in the end want to work with people like themselves, presumably in some respect professional quango-ites. Part of the challenge is that in many cases quangos should actually be putting themselves out of business. Other quangos should be driving reform and change. But the characteristics of people who get to sit on quango boards have to a great degree established their legitimacy, not as reformers, but as a ‘safe pair of hands’.  Radical, reforming, challenging individuals will never fit as quangos exude stability and bureaucratic purpose, not the instability that comes from reform and general disruption of the status quo.

Quangos could even be seen as evidence that the status quo is alive and well!  A quango focused on innovation should itself be innovative, it might instead suffer from the usual pressures to deliver performance metrics on attendees at workshops on innovation rather than evidence of innovative outcomes.  A quango on research would be disinclined to consider speculative more risky research proposals, as they must prove the value of taxpayers’ money. Quangos that invest in early stage high technology research spin-offs from research labs would need to demonstrate in some budgetary cycle that their investments were creating jobs, for instance, despite evidence that such start-ups might take 5 years before they would have any impact.  And so it goes.

In the meantime, taxpayers’ money is spent on people whose careers are simply to sit on quangos. And when do we have a discussion about whether the very criteria for public appointments to quangos are themselves part of the problem? Perhaps there’s a quango for that?

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Why start-up companies fail

Recent research from Toronto-based The Impact Group has identified key determinants why early stage and start up research and development companies fail. I attended a small group briefing in London by one of the lead researchers, Dr Jeffrey Crelinsten, and which offered an opportunity to consider wider implications of their findings.

Key factors identified for failure included:

  • no revenue from any customers, failure to identify or engage with customers
  • misreading markets, either overly optimistic market metrics or weak/ineffective market entry strategies
  • product not needed or failed to identify clear applications
  • longer than expected research/development phase
  • lack of skilled management team and poor company governance, and lack of business experience
  • no sense of urgency, and
  • greed.
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Building confidence for Europe’s entrepreneurs

A rural shed

Entrepreneurs all start somewhere

I had the distinct honour of speaking at and participating in a panel discussion at the European Foundation for Management Development conference at Advancia, in Paris recently. An informed group assembled to hear from entrepreneurs and academics.

I was impressed with the work of Advancia and the support it gets from the Paris Chamber of Commerce. This is an important twinning of interests, and I think a model for other countries. I like institutions that enjoy considerable independence and can forge unique approaches to the challenges of the modern world. Education for entrepreneurs is a major concern and the role of Advancia is to be applauded.  I would only add that entrepreneurs also need start-up capital, cash-flow financing arrangements with banks, and of course customers keen to buy from innovators.

That Europe is often compared unfavourably to the US is unfortunate, and perhaps betrays the belief that the US gets it right while the rest of us just muddle along. My view is that Europe has unique strengths (and some worrying weaknesses) that should enable distinctive European approaches to developing entrepreneurs and supporting innovation. Rather than copy Silicon Valley, create another model entirely. I didn’t hear much about how Europe can do this, but I left the event feeling there was life on Planet Europe!

My thoughts coming out the conference are that Europe must be mindful that it not kill off small businesses with heavy-handed social regulation, that drains start-up capital.  We hear a lot of talk about jobs and employment, but small and medium businesses are jobs engines and from these small firms grow corporate oak trees. We must also be mindful that while Europeans may feel a perhaps smug complacency at holding the moral high ground on many pressing social issues, this does not help when unemployment is high, with its corresponding economic, social and personal costs.

Whole emerging industries are waiting to be developed, yet more nimble economies may indeed snatch any advantage Europeans may have.  Three sectors come to mind: 1. green and environmental technology, 2. electric vehicle technology and 3. sustainable models of industrial growth. No doubt there are many others.

The fear is that even when Europe is ahead, other countries act more quickly to create the sense of urgency needed to fund commercialisation and market adoption of new technologies and services, and once again, Europe may fail to build another global gorilla. Entrepreneurs have a sense of urgency, but systems we design to foster innovation can in the end be bureaucratic and lack timely responsiveness — we do not normally associate entrepreneurialism with the public sector.

I also worry about the need, particularly at the Commission level, to be fair in allocating grants or funding in general. Capitalism, economic development, innovation isn’t really fair and we can’t always back all the winners and ensure there are no losers. While I endorse fairness as a social good, in matters of investment of innovation, you back winners, and no one really knows which are the winners to back and certainly there is no divining rod in government funding that can accurately ensure funding goes to winners. Losers are inevitable — and we heard of important work at Advancia on bankruptcy law across Europe. We need to learn to tolerate failure if we are in the end to build a Europe fit for the 21st century and more.

Entrepreneurs and the invention of the future

Graph of the locations of water on EarthI attended the European Foundation for Management Development conference at Advancia 22-23 February 2010, to meet new colleagues as well as participate in a panel discussion on the challenges facing entrepreneurs. I organised my presentation around the question: “what sort of the future will the entrepreneur invent?”  I used two pictures to start my talk, one a 1530 Utopian painting and the other a poster of Fritz Lang’s dystopian film Metropolis.

Everything around us is invented, discovered, or created by the mind of people making sense of the world, so while it may be too much to see the entrepreneur as a super-human force of nature (as some discussed at the conference), the point is that human ingenuity is behind the world we live in, and our ability to be ingenious drives the

entrepreneurial spirit. I raised these issues in my presentation:

  • crises are really opportunities, especially for entrepreneurs;
  • the growing networking and interconnectedness of the world offers amazing opportunities for entrepreneurs to look at ways to bring people, information and services together; concerns about digital divides, social exclusion etc., in my view are transitional features of the current world, and not defining features, and that in time, these will be replaced with other forms of exclusion; the point being that technologies themselves are not exclusionary, but what people do with them is;
  • rising educational attainment is upon us, and there will be a substantial decline in the percentageof the population globally with only primary education, and doubling in the next decade or so of numbers of people with tertiary education; again, this offers amazing opportunities for learning in new ways, also considering the networking of the planet;
  • agricultural innovation is seriously important as over the next 20 or so growing seasons (years), the planet’s population will rise by about 30%, per capita food consumption will rise by 50%, dietary preferences will change, water and energy demand will also rise; this points to the need to ensure that fresh water is where the people are (right now, the fresh water is located mostly where people are fewer), and that each agriculturally productive hectare can add 50% of productive capacity — in very few growing seasons; with climate change, too, factors such as what grows where comes under stress, as different areas will need to learn to grow non-traditional crops, and other areas will become unproductive;
  • I also showed pictures of intelligent machines such as an autonomous GPS-guided farm tractor, and a similarly autonomous mining truck; the autonomous military robot with its gun on top is a telling reminder of the progress in military science, while the Utopian picture of the smart city of the future offers a different sort of hope;
  • finally, I showed a map of the world 4 degrees warmer, and wondered how we were going to deal with social displacement indicated by the growing numbers of people who will come to live in unihabitable or hostile environments (at risk of flooding, heat stress, and so on).

Having said all that, I am left to wondering though how we bridge the entrepreneurial challenges facing the public sector.  In many cases the challenges entrepreneurs face are caused by governments, and by regulation, as well as by restrictive banking practices which make access to capital so very hard. While we look to the entrepreneurial spirit in the private sector, and feed and encourage creativity, we find the opposite is true in the public sector. Indeed, Martin Lukes, from Prague, presented an excellent paper, with a telling conclusion that public sector people have less organisational support for innovation and entrepreneurial activity than their private sector counterparts. In some respects the elephant in the room is the public sector, consuming huge amounts of taxpayers’ money, yet often failing in two ways, failing to ensure entrepreneurial growth through poorly thought out rules and regulations (red-tape, regulatory burden and so on), and failing to get their own house in order.  Given the current state of affairs in some the world’s major economies, I don’t think the public sector can excuse itself from the need for entrepreneurial reform and effort.

The invention of the future requires all hands on deck, and no one can be spectator any more.