Telling the truth about SME life today

Paul Barry-Walsh

In fact, he’s the sort of man who builds empires, a casual, deceptively determined computer magnate who’s turning his remarkable business gifts (and significant wealth) to the fiendishly challenging task of bringing Britain’s most disadvantaged people back into work. It’s a job beyond generations of politicians, but could it be achieved by one entrepreneur?

Quietly, over the past six years, Barry-Walsh has become one of the UK’s largest “microfinance” lenders to a raft of society he calls “the sub-prime’s sub-prime”. His Fredericks Foundation, named after his philanthropist grandfather, lends small sums (on average £3,000) to individuals across the south-east of England who most struggle to get credit  – be they ex-offenders, single parents, the disabled or mentally ill.

More than 500 businesses have been started with Fredericks loans since 2002. They include Daring Designs, the brainchild of Alex Salway, who was badly injured in a car accident and unable to continue her former career as a hairdresser; Dans Le Noir, the restaurant run entirely by blind people that serves customers in complete darkness; and Broad Signs, formed by signwriter Kevin Broad who created a printing business in the front room of his council flat after being made redundant.

The heart of Fredericks’ work is the interview panel, which takes place on the middle Tuesday of every month. Barry-Walsh and team gather to listen to often heartbreaking stories of personal tragedy and financial hardship. Emotions run high at these sessions where people outline their business plans. For many, the Fredericks Foundation interview is the last-chance saloon, their final throw of the dice before the trapdoor of financial oblivion opens. Dragons and venture capitalists have long left this world. One senior British banker dismissively says of microfinance: “in an advanced economy such as ours, the amounts involved are uneconomically small, and unduly risky.”

The reality is somewhat different. Today, more and more promising little businesses are coming through the Fredericks Foundation; loan repayments stand at an impressive 75 per cent (businesses pay two per cent above base rate); and, more significant, the Exchequer has probably saved in the region of £15m to £20m through reductions in welfare and incapacity benefit payments.

Fredericks’ mantra is loans, not grants. “The whole mental attitude is different with a loan,” says Barry-Walsh. “As soon as you start lending money, rather than giving it away, you get better outcomes.” Mohammed Yunus, the Nobel Prize-winning Grameen bank founder, advised him to “Poor people are smart, they know what they need. They also cannot afford not to repay. They will starve rather than not repay because they know this is their only chance.”

It’s little wonder that Barry-Walsh is being courted by senior Conservatives – high-flying shadow minister Michael Gove has agreed to be a foundation ambassador; shadow minister for charities, social enterprise and volunteering Greg Clark has been in touch. Doubtless they see him, like Yunus, as a potential folk business hero.

Barry-Walsh is not an obviously messianic figure, his style more involving than rabble-rousing. He was born into upper middle-class stock. His father served in the army in Germany and Cyprus; his grandfather was an obsessively generous old-school Anglo-Irish gent who, much to his wife’s fury, would dish out money to any passing tinker. Young Paul was influenced by a wealthy uncle who used to roll up in the latest flash sports car. “I didn’t really know what he did, but he said he was ‘in business’.”

After studying at Liverpool University where he read economic history, partied and went to Bob Marley and David Bowie gigs, Barry-Walsh joined IBM. He admires the organisation to this day for its paternalism and respect for the individual. In 1986, he left to start Safetynet, a computer security business that he sold in 2000 to Guardian IT; Barry-Walsh personally made around £70m from the sale. Today he is chairman of the £37m-turnover quoted IT outsourcing business, Netstore. Acquaintances say he has an admirably normal, family-centred life, with none of the frivolities of great wealth. His children have been told not to expect big financial hand-outs. Barry-Walsh describes himself as a Christian, but isn’t a regular church-goer.

His experiences setting up Safetynet were the catalyst behind the Fredericks Foundation. Even as an experienced businessman with a ready network of contacts, Barry-Walsh found it inordinately difficult to raise capital. In the end, he had to trade 26 per cent of the start-up’s equity for a mini-computer (in those days, a room-full of hardware). “I thought, if it’s that hard for me, how hard would it be for someone with no qualifications, a terrible start in life or a physical disability?”

Barry-Walsh has invested huge amounts of time, energy and money into Fredericks’ success. Business partners say he is very hands-on with the foundation’s work, attending interview panels and helping to make loan decisions. He himself admits that Fredericks can become “far more involved than we should” in its businesses’ trials and tribulations.

The eminent investor Michael Jackson, who sits on the board of Netstore, says Barry-Walsh is “just an incredibly nice guy. Running Fredericks probably suits him better than being a nasty businessman.”

Roshan Bailey, the founder of Business Ability, who has worked closely with Barry-Walsh, particularly admires his efforts to make the foundation as self-sustaining as possible – for example, by persuading his own non-charitable business interests to donate one per cent of profits through the Friends of Freds initiative. She describes him as modest, enthusiastic and caring, although “he can get impatient at times – especially dealing with the public sector!”

Those run-ins with bureaucracy have left their mark. “I’ve become viciously anti-government,” says Barry-Walsh. When Fredericks Foundation won a £70,000 European grant a few years back, it was expected to deliver 25 business investments; it delivered 32. “Instead of congratulating us, they double-audited us”. Four (presumably incredulous) auditors were despatched to the 12-person charity to find out how it could possibly have exceeded its promises. Astonishingly, the blind waiters at Dans Le Noir are only allowed to work 15 hours a week, otherwise they lose their benefits.

Business is the answer to what Barry-Walsh sees as widespread social breakdown. “Britain is not in great shape,” he says. “It has the second-highest number of single parents in Europe; the worst drunkenness among the young; the highest drug abuse; 3.6 million people are economically inactive.

“The only way out of poverty is through work. We will never eradicate it through government hand-outs, even if that was the right answer. And in fact, I think government hand-outs are part of the problem.”

Barry-Walsh has something of the reluctant revolutionary about him. He was impressed by Iain Duncan-Smith’s Fractured Families report, which concluded that family breakdown leads to homelessness, drug addiction and crime. Fortify the family, said the former Tory leader, and you help individuals and “contribute to better economic performance.”

Barry-Walsh cites the ground-breaking “Wisconsin Works” (W-2) welfare-to-work initiative. The programme, pioneered by former governor Tommy Thompson with the tagline “tough love”, removed state “aid to families with dependent children”, requiring them instead to work (with the state providing associated social provision such as child and health care).

Fans of W-2, which has become a national model for welfare reform in the US, say it’s reduced Wisconsin’s monthly welfare caseload by 90 per cent. Critics say it’s a draconian system that forces all recipients to work, regardless of circumstances. They say that, far from reducing poverty, W-2 creates a low-wage, captive work force and removes the notion that government has any role in promoting general welfare.

Barry-Walsh takes a less hard line. “Everyone has a tough time sometimes, but nobody should be taking out employment benefits for more than two years of their life,” he says. “Did you know that, statistically, you’re more likely to retire or die than come off incapacity benefits?”

Small business isn’t only the answer, says Barry-Walsh, it’s the natural order of things. The past 150 years since the Industrial Revolution have been a historical blip that’s favoured large organisations, he argues. The high cost of capital has meant that only large-scale production has been economic. Today, with the arrival of the internet and highly flexible manufacturing, “we’re reverting to an environment in which small businesses are more appropriate.”

He believes that the end of the era of cheap fuel will lead to a greater localism, again strengthening the role of the small business; and that the strongest communities are now built around the workplace rather than villages, neighbourhoods or churches. With a “space for paternalism” that’s not possible in numbers-driven corporates, small companies will become the dominant economic model.

The Fredericks Foundation is itself primed for growth, expanding beyond its south-east roots up to Milton Keynes and Oxford, east into Kent, and westwards to Wiltshire. A national roll-out isn’t out of the question, though escalating admin costs would be an issue. Such is the quality of some of its client businesses that the foundation is even beginning to take equity stakes. Barry-Walsh reckons the Fredericks model and delivery record could lead it to be a kind of white-label back-office system for other agencies and charities. New CEO Charles Dodwell will be busy.

This year, Barry-Walsh received a Queen’s Award for Enterprise Promotion. He may not covet the attention that the inspirational Fredericks Foundation will bring, but he surely deserves it.

Paul Barry-Walsh in micro…

Women“Women are more cautious about taking out loans. Statistically, they are also much more likely to repay them. But the most successful organisations that we lend to are run by men.”

Why micro-businesses fail“Poor marketing.”

Fredericks’ first loan“Our first loan was to an enterprising criminal. He was put into jail for dropping a bail of hashish out of a small plane. Instead of landing in a field, it landed in a town high street. His business idea was a website service linking garages that sold different car marques. He’d researched the market, it was a great idea. We gave him him £3,000 to help him develop the business, and threw in the petrol to get to the meetings. We were all smiles, shook hands, took a photo and never saw him again.”

The target culture“I met a local authority IT director who said he had to meet 158 different targets. It’s madness! When you’re running a business, you measure three or four key performance indicators. Why do you think a car only has a speedometer and a couple of dials?!”

Small business vs big business“In a small business, every person matters and feels as if their contribution makes a difference. In a big business, nobody really matters, even the chief executive.”


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