Research from FSB reveals that lack of funding is one of the major reasons that startups fail. This puts significant pressure on cash flow. However, as a result of the equity economy this is no longer the case.
In terms of stressful situations, research shows that entrepreneurs rank starting a business above divorce or the death of a spouse, despite these being widely considered the two most stressful life events. Startups are not for the fainthearted, and yet entrepreneurialism in the UK is at an all-time high.
In 2015, 608,110 businesses were incorporated – a five per cent increase on the year before and a 20 per cent increase on five years ago. Pundits believe that despite a period of net job creation and earnings growth, more people than ever are deciding to strike out on their own suggesting a sustained cultural shift towards entrepreneurialism rather than a short-term response to the financial crisis and a poor job market.
Transformations in working practices, such as remote and flexible working in part facilitated by faster broadband across all regions of the UK, are playing a significant role in this increase. They mean that culturally we’re becoming more attuned to working on our own rather than amongst a team in a fixed, rigid office environment. This shift has made it easier for budding entrepreneurs to make the jump or even manage their ventures alongside other commitments.
The UK’s regulatory and policy environment is also particularly hospitable towards entrepreneurs, with flexible labour markets, a favourable tax regime and a whole host of government startup support schemes. Moreover, the recent vaunted tax allowance for the sharing economy is also expected to foster a more entrepreneurial mindset in the UK as the tax break for the digital age is expected to encourage increasing numbers of people to become micro-entrepreneurs.
As the level of incorporation has increased, so too has the number of incubators and accelerator programmes, but despite these aids only a small fraction of startups will see their third birthday.
According to The Guardian newspaper, accountants are warning that Brexit is creating a particularly uncertain period for new businesses. Many firms find themselves spread too thin and so are poorly equipped to negotiate the financial terrain that an economic shock presents. At the same time, suppliers will begin to tighten their terms and chase debts more aggressively.
Poor cash flow management is the primary reason for a vast proportion of business failures. Many profitable companies find that they are, for all practical purposes, insolvent – simply because of uneven cash flow. The key, obviously, is to have enough cash coming in to meet your necessary expenditure on a month-by-month basis, but this is sometimes easier said than done – a few late payments from customers, the tightening of credit terms from a supplier or two, and the whole thing could go to pot.
This is where the equity economy comes in. Simply, the equity economy is a way for entrepreneurs to turn a small percentage of the equity in their startup into an easy-to-use currency that can be used to reward those that help them to build the business. In other words, equity in exchange for expertise from people with the skills and experience new businesses need such as branding, marketing, web design, accountancy, consultancy, mentorship and much more.
These contributors are the specialists that many organisations need but can’t afford due to their limited cash flow. At the same time there are many specialists out there looking for an opportunity to “invest” some of their spare time in exciting new ventures in exchange for real shares in that business.
This exchange not only mitigates cash flow problems, but also addresses two other key reasons commonly cited for businesses not getting started and/or failing:
(1) Poor idea/concept
Specialists will only invest their expertise in ideas and concepts that they believe in. Consequently, entrepreneurs will very quickly realise if their business plan or model has potential or not.
(2) Lack of skills and knowledge in-house
The equity economy gives entrepreneurs access to the expertise their businesses need in order to thrive.
Addressing these pain points greatly increases a startup’s chance of not only getting started, but of succeeding during its fledgling years. Consequently, the equity economy is an incredibly powerful concept for startups and the reason I created a platform that turns the equity economy into a reality.
With so many businesses at risk of failure for the wrong reasons, and another half a million or so being created each year, the entrepreneurial ecosystem needs the equity economy.
Resultantly the equity economy is set to alter the startup landscape irrevocably and contribute towards the UK continuing to be an entrepreneurial powerhouse.
Ifty Nasir is the CEO at Vestd
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