James Caan: ‘Want to know a great way to survive as a start-up?’
The former Dragons’ Den investor on why start-ups with an experienced mentor on board stand a much better chance of making it
The UK has really caught start-up fever now, and it is something which genuinely delights me. There is undoubtedly a great entrepreneurial appetite in this country and the opportunity to take charge of your destiny and become your own boss is a fantastic one.
Over the last two years, the number of start-ups launching per year in the UK has gone up to over 500,000, a rise of 19%.
But while this is great news for our burgeoning economy, it also carries a risk. If there’s one thing we should be aware of, it is making sure we have the infrastructure and support system to sustain this wave of enterprise.
According to research, 50% of start-ups fail within the first three years. And according to the Federation of Small Businesses, small businesses currently account for 47% of UK employment – that's around 11 million jobs. It is therefore crucial we minimise the risk of these start-ups ceasing to trade as much as we can.
In an article written last year for the Guardian, Amanda Jobbins, chief marketing officer at Sage Group, said that start-ups need mentoring and support at least as much as they need financing: “There is evidence that [mentorship] can and does work. 70% of small businesses that receive mentorship survive for five years or more,” she wrote.
A lack of support and advice is one of the fundamental reasons for business failures. There is no doubt people starting their own business are usually good at their jobs, but they don’t always realise they have to be good at a variety of other things as well – HR, financial planning, legal, admin, marketing, branding – the list goes on. I always urge people to hire experts in those areas but as the founder of a start-up you still need to have a good breadth of knowledge.
It is no wonder then that people can become overwhelmed by the task – I am most active in the recruitment sector and studies show that only 15% of companies in this sector ever get revenues of over £1m and a headcount of over 10. During the recession years, where the economy was at its worst, I personally backed six entrepreneurs to start their own recruitment businesses, and they all reached those targets within 12 months. I believe a key reason for this was the culture of mentoring that we all insisted upon.
It is critical to get experts on board as soon as you can. You should look for people who have already done what you are setting out to achieve, and know your industry. You may have seen recently that I launched the Recruitment Entrepreneur initiative, where I offer mentoring as well as capital to people that want to start their own recruitment business.
Having been in the industry for over 30 years, I have seen the ups and downs you can face, and like a lot of entrepreneurs I feel it is my duty to pass this knowledge on.
For example, in the early 90s my business went through the recession for the first time. Fortunately we got through it, and the main positive to come out of it was that I am now able to share this experience with all the CEOs and businesses I invest in.
And every applicant I have met through the initiative has told me the same thing – they are looking for a support network as well as capital.
Whichever sector you are operating in, there will always be plenty of specialist investors for you to target. Whether you are in the business of providing a product or a service, whether you are launching in the UK or expanding overseas, I passionately encourage you to find yourself an expert. Get this right – and you are giving yourself a head start.
James Caan is a serial entrepreneur and former Dragons’ Den investor. The Recruitment Entrepreneur initiative is open for applications.