Taxation of Innovation – How UK tax incentives support the innovation lifecycle

Here are the slides that I used to present to the Chartered Institute of Patent Attorneys (CIPA) at a seminar in Liverpool last week. The key relevant theme was the Patent Box (given the audience) but my objective was to emphasise how and where the Patent Box fits into the wider series of Government tax incentives aimed at innovative IP-rich UK companies.

From start-up we have the Seed EIS followed by EIS for tax efficient funding. Both schemes are designed to support companies undertaking R&D work and creating their own IP.

R&D tax credits then step into support companies during the development phase. The R&D tax credit relief continues to be a fantastic source of support for UK companies but up until 1 April 2013 there was a cliff-edge at the exploitation stage as there were no tax incentives there to support IP rich companies.

This where the Patent Box steps in to support companies with qualifying patents to complete the innovation business lifecycle.

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Reimagine your business using mobile technology

An interesting event this morning on “Redefining the Customer Experience using Mobile” hosted by the Institute of Directors (Young Directors Forum) held at the Alchemist in Manchester’s Spinningfields.

In addition to some mind-boggling stats about the proliferation of mobile connections and apps being launched on a daily basis, the overarching message for businesses is that the mobile tech opportunity whittles down to three key advantages:

1. Better customer information
2. Better customer understanding
3. Better customer relationships

After all, a smart phone or mobile device sits in the pocket of pretty much every single one of your target customers.

Some interesting case studies demonstrated how apps can add a element of engagement and fun e.g. Barrett shoes asking for user’s dates of birth to identify their birth stone and therefore their likely personality traits and of course shoe preferences (the live demo worked!). Plus Kiddicare who has built in a multitude of capabilities into their app to allow customers to view video demos of products and even scan barcodes in competitors’ shops to get a price match – plus next day delivery and a 365 day return policy (a no-brainer?!):

“so our competitors become shop windows for our products”

Watch out bricks and mortar retailers!

In designing apps, advice was given to focus on your target market and ideally get them to help design it – otherwise you’ll risk ending up with a highly functional yet dull and unengaging app. And to:

“think multi-channel rather then just Internet in approaching and targeting your market”

Disruptive technologies such as mobile point of sale apps and hardware were highlighted (I was surprised that Dorsey’s Square was not mentioned?) plus user friendly technologies to help offsite / mobile workers transfer data for processing in realtime as opposed to dropping in and out of the office.

Mobiles or smart phones have become such an integral part of daily life that if you as a business owner do not have (or at least are not thinking about building) a channel into your existing or future customers’ mobile device, then you’re pretty much toast!

I liked the comment from Kiddicare:

“we’re a tech company that happens to sell childrens stuff”

Its like McDonalds founder, Ray Kroc‘s comment “we’re a real estate company that happens to sell hamburgers” updated for the 21st Century.

Approached from this perspective, it should help us all reimagine our business or even our entire industry.

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A business idea shared is a business (almost) launched!

As a budding entrepreneur, its understandable to want to hold onto and covet that killer business start-up idea.

If you are on your own and perhaps struggling to drive the new business idea forward, the danger is that with every day you let pass, someone else gets closer to climbing ahead of you and launching the same or similar business. Or the pain or need that your idea solves becomes obsolete or outdated.

You need to share your vision or idea with as many people as possible.

This has three main benefits:

  1. It allows you to develop and hone your idea from the feedback received from others. This will save you a lot of (potentially wasted) time, energy and money in the long run, AND
  2. It provides an opportunity for others to introduce you to the people who may hold the key to launching and making your new business a success. Either as investors, future partners or just folk who’ve been there and done it, these contacts can be invaluable. Heck, you might even stumble across these people directly if and when serendipity steps in to plays its hand! AND
  3. It holds you accountable to carry out your plan. It is an act of commitment. Once you share your idea with the world, people will either cheer you on your well earned success or scoff if you limply throw in the towel. Its like having millions of personal trainers. Speaking of which (sort of) – Just do it!

If you remain unconvinced by the prospect of sharing your idea with the world, I’ll leave you with the following two assertions to ponder:

  1. Most people are busy running their own lives with their own priorities, issues, hopes and fears. The chances of anyone you meet thinking “that’s a great idea, I think I’ll steal it and go do it myself” and then having your passion and your insight to see it through are remote.
  2. The best innovators are businesses that are unafraid of the competition. They have complete confidence in themselves as game-changers at the cutting edge of their industry. Therefore, as fast as anyone tries to copy them, they know these competitors will only ever be mere pale imitiations.  They also wallow safe in the knowledge that the well of creativity and ideas is without end – think Apple. Nuff said.

Are you ready to share now?

Caveat – the above advice should not be applied in the case of new intellectual property or technical specifications e.g. software coding; technical drawings or know-how etc, which should remain top secret and protected.

Effective communication need not cost the earth

If you’ve been wandering around the streets of Manchester of late, you might have noticed a new and ingenious advertising opportunity as demonstrated by on the pavements and side-walks. cleans paving slabs using just water and a stencil to spell out each striking advertising message. Simple, eco-friendly, clean, innovative and 100 times more noticeable than a billboard!

Could this work for your business to communicate its message in a highly effective yet affordable way?

I highly recommend that you visit their website to view examples of their 3D pavement art – simply stunning. Watch this short video as a taster:

Whilst we’re on the subject of innovation and things being not quite what they seem; how about the following for a novel way of reducing road speeds:

If you saw this ahead, would it slow you down?

Likely. But you could be cunning and aim to drive so that you’re wheels straddle the pot-hole either side. To combat this, would the following slow you down?

Almost certainly, but hey it’s not very eco-friendly or cost efficient to go around digging potholes in otherwise perfectly manicured roads – unless all is not quite what its seems?

Two good examples of effective and innovative communication that need not cost the earth.

Do you have any other creative and innovative examples to share?

Social learning beats innovation to business success

Business Dilemma: You can build your business by either:

  1. Copying your competitors or
  2. Striking out to develop new Blue Ocean markets.

Which is likely to be more successful?

A fascinating new study carried out by Kevin Laland of the Universtity of St Andrews (covered in The New Scientist – 1 May 2010) suggests that the former copy-cat appoach is likely to lead to greater chance of success and survival.

This is at odds with much of the wider thinking on the importance of innovation and original thought in business today.

Laland carried out an online gaming tournament (a sort of SIM City) in which gamers from across the world controlled agents. They started with 100 agents each and the challenge was to see who could develop the strongest “fittest” species of agent to dominate the virtual world. Players could choose from a variety of behaviours ranging from “innovation” to “observation” to “exploitation” at each stage of the game.

Social learning held the key to success in the game. For example, the fittest agents spent more time watching and observing other agents whilst the less successful focused more on innovating. However, there’s more to it than simply sitting and watching; the successful agents were careful in allocating the amount of time they spent observing (“between a tenth and a fifth of their time seemed to be the optimal range”) and also managing the recency of the information observed and digested.

In other words, the top performing agents observed the best and most recent traits of success on offer then were quick to implement these skills for themselves.

Building from this was the importance of ongoing learning – it was not front-loaded in the sense of: watch and learn then put into practise these new skills for the whole of the rest of the game. Rather it was more a case of watch and learn then put into practise for a bit; test results; watch and learn some more; discard out-of-date knowledge and put into practise latest learning; test results; and on and on. This brings into notion the fundamental flaws in our current system of: spend the first 16 – 21 years of life in education and then into the workforce (with all learning behind you) for the remainder..?

The corollary to this is that you still need innovators too. If there are only social learners then they will watch, observe and copy one another infinitum until the knowledge becomes so outdated that they all perish. Instead, an innovator will break the mould and successful social learners will jump on the bandwagon in “parasitic” fashion as played out in the game.

It is fascinating that so many entrepreneurs seem to think that they need to have that great idea (which incidentally rarely lands) whilst all around us are successful entrepreneurs who have built their fortunes on tried and tested business models originally developed by others.

Overall, the winner of the experiment demonstrated a canny ability to watch and learn (the right innovators) then take and apply that knowledge and behaviour. But more than this, the success  also lay in keeping a watchful eye on the ever changing environment to identify when it was time to go back to the drawing-board and find new and updated skills to copy. Then to get back out there and do it again and again and again…

Earning a Buck in the Digital Age – Delivering Professional Services to Digital & Creative Businesses

Pro.Manchester‘s Creative session on Earning a Buck in the Digital Age proved to be a compelling discussion on how professional service firms can work more effectively with the North West’s flourishing digital and creative businesses.

Held at Halliwells in Manchester, the panel consisted of Simon Wharton, Nick Rhind, Shaun Fensom, Coral Grainger, Philip Hemsted and Steve Kuncewicz (hosted by Nick Jaspen ).

The session focused primarily on the interaction between law firms and digital businesses, however, the discussion was equally applicable to ALL professional advisers (PSFs).

Here were my key take-aways:

  • How do you square £100-£200 hourly rates of PSFs with small digital agencies which have a handful of employees and a limited budget? This crucial question framed most of the debate and was never fully resolved. What did become evident is a clear communication gap in perceived and actual value that professionals can bring to fledgling and more established SME businesses. Nick Rhind conceded that he had learnt a lesson by settling for free business advice either online or from friends in the early days until his business needed bailing out by professionals a couple of years later. An “expensive mistake” given that it is usually more expensive to fire-fight problems after the event than to stop cock-ups happening in the first place. I see this time and time again when I pick up new clients and just wish I had been involved from an earlier stage. There is so much we can do.
  • Speed of delivery of professional services. Digital businesses operate in a fast moving world driven by technological advances – can traditional PSFs keep up with the pace and demand? Coral Grainger raised the point that many business owners’ experience in working with lawyers for the first time may have been in buying a house – the typical drawn-out conveyancing timetable doesn’t bode well for digital businesses who will expect responses quickly – in hours not weeks!
  • Transparency of billing was quite rightly viewed as key. Businesses want to know how much they will be billed upfront rather than working on a time spent billing basis. I am pleased to say that from comments made from the floor, it appeared that most professionals in the room operate on a fixed fee basis agreed in advance. At my firm, we offer a heavily discounted tax and accountancy package for fledgling digital businesses for this reason. However, the fact that this point was raised shows that we are not communicating our working practises clearly enough and the old image of the ‘ticking clock’ still lingers….
  • Introducing open-source methodology to professional services. Digital and technology companies are increasingly breaking larger projects down into smaller manageable tasks that can either be crowd-sourced or taken on by specialist teams. This has proved hugely effective. Can this be applied to professional services whereby template documentation or boiler-plate information can be offered online for free and amended by businesses for their own use (with advice sought where necessary)? There are already examples in the legal market where such practises are emerging – there is still a long way to go.
  • Professionals need to better engage with social media to build relationships online – professionals have long been good at networking at events, however, they increasingly need to bring social media into the networking mix “or die”. Judging by the limp show of hands from the floor when asked who is active in social media online, us professionals have much to learn and do!
  • Risk averse mentality. Most professional are risk averse – “this is how you surely want us” was a comment made from the floor – so how can professionals make better use of social media as a tool to interact whilst avoiding potentially costly errors or law-suits from instantaneous or “off the cuff” remarks online? I believe the key is in the “social” of social media – we don’t have to constantly spout out technical advice and, quite frankly if we did, we would be preaching to a v limited (and bored) bunch of followers!
  • PSFs / businesses should bring SEO analytics into the boardroom – Simon Wharton is bang on with this. Marketing data has never been so readily available and website and online marketing provides the tools to achieve this. This could be a session topic in its own right.

Overall, this discussion opened the floodgates to a huge raft of issues that, when fully explored, should allow us professional advisers who wish to engage to increase collaborative opportunities that we are clearly sadly missing at the moment.

A great start folks, where next?

Zappos points to Future Business Model

You will see from the above video that Zappos is no ordinary company.

Zappos launched in 1999 and today has annual sales in excess of $1billion.

Zappos sells footwear and clothing online. Sounds fairly ordinary however, the key to Zappos’ success is its unwavering focus on building a unique community culture amongst its staff and customers by aiming to build WOW! into every interaction.

This culture is evident from its (refreshingly different) values:

Deliver WOW Through Service

Embrace and Drive Change

Create Fun and A Little Weirdness

Be Adventurous, Creative, and Open-Minded

Pursue Growth and Learning

Build Open and Honest Relationships With Communication

Build a Positive Team and Family Spirit

Do More With Less

Be Passionate and Determined

Be Humble

Yet the Zappos culture is disruptive in other ways too including the fact that:

  • employees are encouraged to open Twitter accounts – so for any customer complaint posted to Twitter, expect to see an employee run to the rescue within minutes (that’s if a raving customer fan doesn’t get there first!)
  • all new employees are put through an intensive training induction course then offered $2,000 to quit! Not only does this weed out those in it solely for the money (merely a job!) but it also helps maintain morale for the existing team who are reassured that only the committed join the community.
  • Zappos is active in all social media channels and listens to customer comments as well as gripes. An online suggestion to stock sunglasses was listened to and acted upon. Sunglasses sales rocketed and Zappos is now one of the largest online suppliers.
  • It offers a 365 day returns policy. Likely to be abused, most would think – however, those that do return items turn out to be Zappos’s most profitable customers overall.

The list of counter-intuitive policies and business practices (compared to conventional business wisdom) goes on and on….. yet the success of the business is undeniable (Amazon acquired the company for c$1 billion).

The really interesting point is where Zappos could go from here. It has built a reputation for reliability, trust, innovation, relentless customer focus, community, inventiveness, transparency, passion and fun. At a time when traditional BIG business has suffered a fall from grace, there is an open goal waiting for disruptive businesses like Zappos. Zappos is, in effect, a service company (that currently happens to sell footwear) and could go on to sell anything as its mad raving fans would flock to support it.

How many UK companies match Zappos’ approach to business?

Patchwork Traditional Food Company launches new products NOT so traditionally

It is great to see The Patchwork Traditional Food Company:

a) launching exciting new products and

b) using new social media channels to good effect to launch quickly, cheaply and effectively.

I’ve long been a HUGE fan of their pate so to see the launch of this ice cream is great news. Here is a business that has stuck to the knitting in producing high quality pates from a family recipe over a good few years. Now run by the founder’s sons, it is great to see traditional family business values mixed with forward thinking marketing techniques and product innovation.

I stumbled across the announcement of the launch of the new alcoholic ice creams via Twitter. A click on the Twitter link led to their Facebook fan page where the company is already generating some buzz around this new product launch.

Throw into the mix some nice artwork (just one example above) to support the new products and its difficult not to comment. But that was the point…. wasn’t it?

Manchester sparks further innovation with FABLAB launch


FABLAB as an institution is news to me but it sounds like a fantastic idea and – even better – they’ve recently opened their first UK based FABLAB in Ancoats, Manchester.

FABLABs offers a mini hi-tech factory where people or companies can design and create pretty much….. anything using latest 3D machine cutters and technology. There are now over 35 FABLABs in existence across the globe in as varied locations as Afghanistan, Russia and Columbia. The first FABLAB was set up in Boston, US by Neil Gershenfeld (as featured in the above short video). 

What is really exciting about FABLAB as an innovative concept is:

  • accessibility to latest cutting edge technology for local individuals, companies, community projects and kids – for FREE!
  • local problem-solving capability for local businesses, individuals etc
  • hands on education – for kids. (For everyone involved).
  • global connectivity of ideas – a global video network allows ideas and knowledge to be spread between FABLABs
  • empowerment of local manufacturing rather than outsourcing the manufacturing process overseas – typically to the Far East
  • environmental benefits of local manufacturing (see point above)
  • democratisation of creativity given the ease of access and low barriers to entry (cost, accessibility and available technology) to design and manufacture.

There have already been some local Manchester success stories using the Manchester FABLAB including the Sky Baby folding travel cot and the Crackit Bat ultralight beach cricket bat.

With the aim of empowering anyone to make anything anywhere – I can only wish FABLABs every success!

Dyson backs ingenious Britain + Changes ahead for R&D tax credits & EIS?

James Dyson hits out at the existing “lacklustre” UK R&D tax credit system and its “botched” implementation by HM Revenue & Customs.

Dyson is right in his assertion that the recent tightening of policy in restricting certain claims (e.g. for prototypes that are eventually sold) is fundamentally flawed, however, my experience of working with the specialist R&D HMRC units has been positive overall.

Sure, the legislation is complex in parts but this is inherent in a system that seeks to adapt for ever-changing claims in line with the emergence of new industries. It should be added that much of the complexity has arisen from attempts to enhance the attractiveness and availability of the research and development tax credits for UK companies!

Dyson suggests that a new improved R&D tax credit scheme be implemented that is simpler to apply and that should be targeted at small, high tech companies. Although I sympathise with the principle of helping many of our future innovative small businesses, such a policy is misguided in its laser focus as it omits larger, more diverse companies that can equally contribute to the UK economy from successful R&D.

An increase of the R&D tax credit rate to 200% (from a current rate of 175% for SMEs) could further increase the attractiveness of the UK as a place for internationally mobile companies to do business – the UK currently ranks 19th internationally for the attractiveness of its R&D incentive regime.

To shift from recent murmurs of a Conservative government (if elected) abolishing the R&D tax credit scheme (in order to simplify the UK company corporation tax regime) to actually improving the regime if the recommendations from this report (commissioned by the Tories) are implemented is welcome news.

Enterprise Investment Scheme (EIS)

Meeting the funding gap for start-up and fast growth hi-tech technology companies has always been tricky given the higher risk of failure – the recent credit crunch has made this a whole lot worse. Angel investors (or micropreneurs) have frequently come to the rescue as, not only can they bring their expertise to the table (particularly if they made their money in a similar sector), but they can also invest in smaller tranches to meet this funding gap where the companies are too small for larger private equity or venture capital funding – and where the banks prefer to look the other way.

Despite the existence of UK angel funding, Dyson notes that over £3.5bn would have been invested if the UK kept parity with angel investment in the US – actual investment in the UK was a disappointing £1bn in 2007.

Tax incentives are available to encourage private investment in UK fledging companies including EIS which provides 20% income tax relief subject to qualifying holding requirements and company types. Dyson calls for an increase in the income tax relief to 30% which should be welcomed, although how far this would go in encouraging wealthy individuals to part with their cash to invest in start-up tech companies remains debatable – unless they have a deep understanding of the sectors.

Overall, James Dyson calls for a change of perception towards science and technology from grassroot levels with greater focus on such subjects at school. He cites a frightening statistic that:

4% of teenage girls want to be engineers

14% want to be scientists

32% want to be models

There is clearly much work to be done!

Welcome your views. You can download the Ingenious Britain report here.

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