With the rise of technology infiltrating all aspects of business, it could be easy to dismiss the future prospects of traditional businesses. To swap ‘bits’ for ‘bytes’.
If you sell music or books from high street retail shops, then this pessimism may be justified given the ease of delivering such products in digital form – itunes, Amazon Kindle (bytes) versus HMV and Waterstones (bits)….
But what if it was possible to build a business in bits that could compliment a bytes businesses?
Think what ebay has done for shipping and postage companies – from a few selling to many, we now have many shipping to many via ebay and Amazon Marketplace. New postage, mailing and courier companies are surfacing to meet this increasing demand.
The challenge now is for traditional ‘bits’ businesses to project forward to how their business might look as digital ‘bytes’ businesses, and to seize the first mover advantage or to look for complimentary services to keep on delivering the bits service in a bytes marketplace.
And so David Cameron continues to make the right noises about making the UK a centre for hi-tech digital, technology and creative businesses – a hub or a ‘UK Silicon Valley’ for the Googles and Facebooks of the future.
Image via Wikipedia
Cameron unveiled his Blueprint for Technology today in East London with a commitment to push through with improvements to UK tax competitiveness, a review of intellectual property laws, freedom of movement of skilled workers, access to funding etc – I won’t summarise all the details as you can read the report in full by clicking here.
Let me kick off my saying that I wholeheartedly agree with Cameron’s focus on investing in intellectual property rich hi-tech digital, technology and creative businesses but I firmly believe that having a business-friendly tax regime and regulatory structure is absolutely key. Given this, I do not believe that the tax measures outlined today go nearly far enough. Okay, we’ll have reduced corporation tax for large companies to 27% and 20% for small companies from next April and there’s a pledge to review the taxation of intellectual property this Autumn but we need more. Far more.
Here are a few suggestions (aka a blueprint for tax) for hi-tech digital, tech and creative UK businesses:
Create Enterprise Zones across the major cities ideally near Universities e.g. Manchester, Birmingham, Cambridge etc which will screen start-ups and fast growth companies for entry to these tax incentivised business parks
These Enterprise Zones (EZ) would allow companies to take advantage of certain tax exemptions and incentives for the first 3 years of trading and then, although they will be entitled to stay thereafter (to build a supportive community), they will be subject to many of the tax rules applicable to businesses outside the EZ.
Hi-tech digital, technology and creative businesses only would qualify for admittance to the EZ (this would include cleantech, medtech and gaming businesses).
Corporation tax rates would be 0% for Year 1, 12.5% for Year 2 and then 20% in Year 3 (or whatever the prevailing small companies corporation tax rate is in Year 3). These rates are similar to in some other countries e.g. tax holidays are available for a certain duration whilst the 12.5% rate mirrors the current Irish corporation tax rate which continues to receive admiring glances from many UK hi-tech companies.
National Insurance Contribution (NIC) holidays would be available for the 3 year qualifying period. There is a temporary general NIC holiday scheme in place at the moment although there are many conditions to satisfy plus the postcode finder for qualifying areas is poor. Under this scenario, if you’re in a qualifying EZ, you qualify. No further questions asked. This way startups and growing businesses can recruit without being hit with penal employer’s national insurance contributions (13.8% from next April). At the very least, I would suggest a tax break from employer’s NIC for the 3 year period.
PAYE would be applied to 70% of earnings of employees of companies in the EZ. This would help encourage skilled workers to take the plunge of joining high risk start-ups and help recruit talent from overseas. The Netherlands has a similar tax incentive in operation.
R&D tax credits would be increased to 200% for SMEs within the EZ (from 175% today) in line with the Dyson Review.
Number of companies set up in a group would not impact on the tax rate within the 3 years (subject to point 4). Currently, if a company decides to set up a subsidiary company (e.g. to test a spin-off concept) then the taxable profit band at which small companies rate is payable is divided by a factor of 2 i.e. as a standalone company it could have taxable profits up to £300,000 and pay tax today at 21% whereas if it set up a subsid company it could only earn taxable profits up to £150,000. By eliminating this rule, companies would then have the freedom to experiment with new ideas and concepts in new companies without getting bogged down with tax considerations. When the 3 years draws to a close, they should be in a better position to know which companies in the group can be consolidated, which ones can be killed off and which ones should be kept.
Income of intellectual property companies should be subject to corporation tax rate at a reduced rate of 5% and this rate would continue to apply beyond the 3 years. This rate looks controversially low but we have to face facts that reducing rates of tax to these sorts of levels is essential if we are to encourage – let alone retain – the Google and Facebook companies of the future. Look around locations across Europe and you will see rates that are not dissimilar. Entrepreneurs owe a duty to their investors to maximise returns and likewise tax advisers owe a duty to their clients to explore best possible options for the long term profitability of their clients. Such planning aimed at shifting income overseas could be stopped in its tracks with these sorts of rates. We have proposals for a reduced rate of 10% corporation tax for patent income, however, the Netherlands already offers 5% for a wider range of intangible income. Remember 5% of Google’s annual income from its brand and other intellectual property is an eye-watering figure – plus there would be employee taxes receipts etc to throw into the mix for the UK Exchequer….tempting?
I appreciate that there is plenty to unpack here but radical times call for radical measures. We are standing on the edge of a huge opportunity. We need to be brave and demonstrate decisive action beyond slick speeches and glossy whitepapers.
George, I hope you’re listening in anticipation of your Budget speech on 23 March 2011.
Before then, I welcome your comments, criticisms and further ideas.
Can you imagine a business that can reach sales of $9bn per year without having to purchase, store or make any products? This is the question posed by Phil Jones in a recent post on the success of ebay. In our ever flattening world, specialist supply chain experts will continue to be a growth area for businesses new and old.
Take Li & Fung as an example of old businesses that has achieved huge success in optimising global distribution networks. Founded in 1906, Li & Fung has diversified into product design, raw material sourcing, quality assurance, manufacturing and distribution and has grown to 15,000 employees worldwide and its annual sales revenues now tops $12bn – yet it doesn’t own a single manufacturing nor storage facility. It optimises price, quality and speed to market by applying the company’s management expertise and specialist knowledge to manage third party outsourced producers and facilities. This is a virtual business built for the 21st century. (If you’re interested in learning more about Li & Fung, I highly recommend reading Competing in a Flat World).
Closer to home (and as an example of a new company in this space), I recently met up with the owners of a Manchester based company that had started a supply chain management business in the electrical and white goods market and had managed to built sales to £12m in their first year of trading and should top £25m turnover in year 2! This is phenomenal growth yet they operate with a team of just 10 staff, a handful of desks, chairs, laptops (plus bags of ambition and enthusiasm).
To improve individual team member’s selling skills so that they can more effectively:
Help customers buy
Emphasise benefits rather than features
Enhance their persuasive skills
yada yada yada….
Your team are already great sales people – even Marge in accounts! They influence, sell and persuade every single day.
It might be that they are ‘selling’ their favourite TV programme, iPhone app, new find online shop or whatever to friends, contacts etc but when something pushes people’s buttons they can sell, sell, sell – without even thinking about it. Everyone wants to recommend new, trustworthy and interesting products and services and to be seen as a good referral source.
So if your team are already great sales people, why isn’t your business selling more?
You may be looking in the wrong direction. Focus instead on your product or service. It should sell itself by being at least one of the following:
filling a gap in the market
1 and 2 are tough. 3 gives you the best possible chance of success. If your team believe that your product is unique, interesting, fun etc then they will talk, sell, persuade, influence and do all of those things that you can otherwise pay £’000s for sales training to teach them.
Think before you seek sales training for your team – are you investing money to solve the right problem?
This entitles our team to various 2 for 1 offers on food and drink (upon presentation of a business card as proof of ID).
An email was sent to our office address today with details of the offer and this was promptly circulated around the team. Word spreads quick when there is the prospect of a limited time exclusive offer – especially when it entails food and drink! No application was necessary and this offer is rotated around local businesses on a week-by-week basis so there is always a steady stream of new customers.
Think about how you might be able to do something similar to drum up further business in your local area. Its quick, easy and effective.
Not long after Labour launched its assault on higher rate tax relief on pension contributions made by ‘super earners’ (prefaced by the introduction of the hideously complex interim ‘anti-forestalling measures’) the Coalition government has confirmed today that it will repeal these tax laws and replace them with a more simplified regime:
£50,000 – annual pension contribution allowance for all
unused pension allowance can be carried forward 3 years e.g. for ‘spikes’ in contributions
enforced from 5 April 2011 (although it could impact on some people now depending on when the pension scheme period runs to).
the lifetime allowance will also be reduced from £1.8m to £1.5m from 2012.
Although simplification of the previous rules is welcomed, it does feel like yet another kick in the teeth for successful owner managers and entrepreneurs who want to do the right thing in planning for retirement yet face severe restrictions on the amount of their hard earned cash that they can tuck away tax efficiently for future years.
If the UK company taxable profits are £300,000 or less, a stand-alone company will normally pay corporation tax at just 21% (‘small companies’ rate’).
This small companies’ rate reduces to 20% with effect from 1 April 2011.
The standard rate of corporation tax is 28%. It will be reduced to 27% with effect from 1 April 2011 and there are plans to reduce it by 1% each year until the main rate is 24% by 2014. This rate applies to ‘large companies’ or those with taxable profits of £1.5m+ if stand-alone.
Company structure allows for cash to be rolled up with low(ish) rates of tax suffered – see points 1 and 2 above.
Corporation tax is not payable until 9 months after the end of the accounting period for the majority of companies.
R&D tax credits and other tax incentives are available for innovative companies.
Remuneration strategies can be managed to optimise the personal tax position of investors and business owners.
Investors in unquoted companies can obtain income tax relief on their equity investment e.g under Enterprise Investment Scheme (EIS).
Shareholding investments in unquoted trading companies can attract 100% relief (exclusion from your estate) for inheritance tax purposes.
Key employees can be incentivised through HM Revenue & Customs approved share schemes such as the Enterprise Management Incentive Scheme (EMI).
Income on UK patents could be subject to a lower rate of corporation tax at just 10% (although unlikely to be introduced before April 2013).
Companies within a corporate group (minimum of 75% common ownership of parent company) can shelter current year tax losses against taxable profits of other group companies.
Have you ever noticed how certain business owners or entrepreneurs always seem to be in the right place at the right time? Is this is a coincidence?
I don’t think so.
A vital few entrepreneurs have a defined plan or strategy – they see the end game (before the game’s even begun). Having such a plan leads to clear desires, objectives and purpose – this makes the day job easier as half the decisions will have already been made before the problem or offer is posed. This clarity of thought leads to (weird and wonderful) synchronicity.
Synchronicity ensures that these entrepreneurs are ready to receive when the time is right.
In summary, having a clear purpose and plans for how you will get there leads to clarity of vision. Clarity is power.
Have you got yours? (unfortunately, few entrepreneurs have – you know it when you see it)
The future of business meetings is about to get a whole lot more interesting with new business sales tools like Intermojo.
Rather than surfing around on ‘Google’ to sniff out further background information on new prospects, clients or future employees, Intermojo provides a one-stop-shop on pretty much everything posted online, primarily via social media websites.
Consider it a ‘best of’ (or not, as the case may be…)
Futurist JP Rangaswami described how the typical worker will be faced with a dashboard of flashing status updates and feedback loops rather than an overflowing inbox over the next decade. Rather than working through to-do lists and tasks, workers will complete ‘missions’ and ‘quests’ – a subtle change in terminology yet a potential profound difference in interpretation and motivation.
Rangaswami explained how social networks are already allowing individuals to ‘life-stream’ what they are doing, where they are etc and to collaborate on shared ideas. Gaming would allow trainees to experiment and to be observed (from afar) via digital tools. Meanwhile, more experienced workers would be able to share best practice (e.g. status updates and tips via text, audio or video) and obtain realtime feedback on their progress against predetermined milestones and goals.
This concept resonates with me on a number of fronts:
1. Games have a compelling distractive quality: motivating teams to focus on the important stuff is much easier when it is perceived as a game – notice the difference in team behaviour on ‘away-day’ or ‘team-building days’ when the shared task is built around a game (quite often unrecognisable from the attitude and motivation in the workplace).
2. Games can make the mundane more interesting: getting kids to eat vegetables can be tricky (ask any parent). Since my kids have reached an age where they enjoy video games, getting them to do the right thing (like eat healthy fruit and veg) has just got a whole lot easier when we frame it in video-gaming jargon. Let me explain, we talk about the qualities of fruit and veg in terms of the boosting effect it has on their ‘Energy Bar’ (an icon usually at the top of the screen on the video game showing the energy before the character loses a life). So for example when they eat an apple we comment on how their energy bar has just shot right up. Meanwhile, junk food lowers their energy bar. Interestingly, they have now developed this ‘game’ a step further by asking about the various vitamins in each food and what ‘special powers’ and ‘weapons’ that these vitamins and minerals will bring them! Who would have thought that Vitamin C, iron etc could be so interesting and appealing to 4 – 6 year olds!
3. Games are fun – if we can make the workplace a more fun place to be then let’s do it.
What are your thoughts on introducing video gaming techniques, technologies and principles to the workplace?
Postscript – if the above is of interest you will probably enjoy the following TED talk that I recently stumbled across by Seth Priebatsch: