Wealth creators assessing the impact of UK entrepreneurs on society

To explore the motivations of Britain’s entrepreneurs, their attitudes to social responsibility and the challenges they face, the Economist Intelligence Unit, on behalf of Lloyds TSB Pri

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Contents

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Executive summary

Entrepreneurs are seen as a key driver of the UK’s economic

recovery, and new businesses are on the increase This year

alone, over 44,500 start-up businesses had registered by

mid-February, according to the government’s StartUp Britain

website But beyond their economic importance as taxpayers

and employers, these wealth creators make other positive

contributions to society Yet the UK often has a distinctly

ambivalent attitude towards the afﬂ uent individuals who

succeed in their business ambitions

To explore the motivations of Britain’s entrepreneurs, their

attitudes to social responsibility and the challenges they

face, the Economist Intelligence Unit, on behalf of Lloyds TSB

Private Banking, conducted a survey of 300 wealth creators

as well as interviews with business owners, academics and

government ofﬁ cials

Key ﬁ ndings of the research include:

Entrepreneurs believe they make a positive contribution to

society

Almost three-quarters (70%) of business owners see the role

of entrepreneurs as a good thing for society in general They

have become increasingly generous with their time and money

Two-ﬁ fths of respondents now contribute hours of personal or

business time to charitable work—up from 32% ﬁ ve years ago

The proportion giving money to local organisations has also risen, with 86% giving to charity

Determination and independence drive entrepreneurs

Freedom to be their own boss is the key motivation for starting

a business for 55% of respondents, while almost 40% identify work satisfaction as a major driver Once in business, almost two-thirds of respondents pinpoint determination as the main source of their success

Tax and a sluggish economy are the biggest challenges for wealth creators

Almost half of respondents (49%) view government policy and tax as the top constraint when creating personal wealth from their businesses, and a similar number (46%) see the economic situation as the main limitation

More governmental support is needed for wealth creators

There is a strong sense (85% of respondents agree) that the government could do much more to encourage and support potential entrepreneurs And although 45% of respondents believe the government recognises entrepreneurs’ contribution

to society, there is less conviction that they are given the practical support they need to provide further social input

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About this report

In January 2013 the Economist Intelligence Unit, on behalf of

Lloyds TSB Private Banking, surveyed 300 UK entrepreneurs to

explore their motivations, challenges and attitudes to social

responsibility

In addition, in-depth interviews were conducted with

entrepreneurs and experts Our thanks to the following for

their time and insight:

 Simon Deakin, assistant director of the Cambridge Centre for

Business Research

 Jonathan Haward, founder of the property search ﬁ rm,

The County Homesearch Company, and the online memorial

service, Friends and Relations

 Rupert Hodson, co-founder of the online ﬁ nancial services marketing ﬁ rm, Dianomi

 Stephen Unwin, founder of the soft drinks ﬁ rm, Cawston Press, and a business coach with the Actioncoach franchise

 A spokesperson from the Department for Business, Innovation & Skills

The report was written by Faith Glasgow and edited by Monica Woodley of the Economist Intelligence Unit

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It is no secret that the entrepreneurial spirit plays an

increasingly signiﬁ cant role in the UK economy In 2011 Prime

Minister David Cameron called for an “enterprise-led” recovery

from the ﬁ nancial crisis and its economic fallout, and the

ﬁ gures suggest that despite challenging economic conditions,

the country’s entrepreneurs remain eager to take the plunge

and set up new businesses

Figures from the Department for Business, Innovation & Skills

(BIS) show continuing steady growth in the number of small

and medium-sized enterprises (SMEs) in the UK There were

a record 4.8 million SMEs at the start of 2012—up from 4.5

million in 2011, and an increase of almost 40% since 2000

(the earliest point for which comparable data exists) The

vast majority (99.2%) of those SMEs were small businesses

employing less than 50 people

Yet their economic contribution is critical Apart from the

potential private wealth generated by the owners themselves,

BIS ﬁ gures show SMEs account for 60% of employment in the private sector and almost half of private-sector turnover The government has launched diverse initiatives to attract new entrepreneurs into the business arena, and to nurture existing small businesses Yet at the same time there is continuing debate about the appropriate use of wealth, and about the social, environmental and ﬁ nancial responsibilities of those who acquire it

This report explores the motivations driving Britain’s entrepreneurs and the challenges they face It examines their attitudes to corporate and individual social responsibility, and considers how far such responsibility is embedded in the day-to-day operation of today’s SMEs Finally, it looks at the extent

to which the government is succeeding in its efforts to provide entrepreneurial business ventures with practical support and

to inspire new entrepreneurs to join their ranks

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In line with the government statistics quoted

above, this survey highlights the fact that small

businesses are the UK’s real economic bedrock:

more than four-ﬁ fths (81%) of respondents’

primary businesses have an annual turnover of

less than £3m, and indeed 38% turn over less

than £150,000 a year

So what motivates entrepreneurs to take the

risks associated with setting up and running a

business? It is deﬁ nitely not all about making

money per se, according to the survey ﬁ ndings

Ambitious owners of small businesses are likely

to plough much of their proﬁ ts back into the

business at that stage of development In fact,

wealth is a somewhat elusive concept for many:

almost three-ﬁ fths (59%) of respondents have

less than £1m in personal investible assets, and

only 5% have more than £5m

When asked to identify up to three motivating

factors, 55% of business owners cite

independence—the fact that it enables them

to be their own boss—while almost two-ﬁ fths

(38%) are driven by the personal satisfaction

they get from the job Only 12% of respondents

admit to being driven by the sheer enjoyment of

making money

These results strike a chord with our

interviewees “True entrepreneurs are ambitious,

restless and looking for new challenges; they’ve

always wanted to do their own thing and hate to

be constrained,” says Stephen Unwin, founder

of the soft drinks ﬁ rm, Cawston Press, and a

business coach with the Actioncoach franchise

“But I think that the inclination to break the

mould and the desire for success, including

ﬁ nancial success, tend to go hand in hand.”

Rupert Hodson is co-founder of Dianomi, which provides online marketing for ﬁ nancial services

ﬁ rms His main motivation for setting up the company was the desire to be his own boss and the ﬂ exibility that goes with it “Financial security for my family is also increasingly on my mind; you can achieve that in other ways, but this

is a more focused and exciting way, and you get a great sense of achievement,” he says

Motivations may change to some extent once the business is up and running The desire for personal satisfaction in one’s work becomes stronger, while the novelty of running one’s own show loses some of its appeal Retirement considerations—ﬁ nancial security and the potential to retire early—also become more pertinent, unsurprisingly

Mr Unwin makes the interesting point that many entrepreneurs fi nd themselves being business owners by chance, rather than as a result of strategically planning a start-up “Cawston Press started because I was running a juice fi rm called Copella, which included the Cawston brand, and was offered the chance to buy back the Cawston part of it when the whole fi rm was sold to Tropicana,” he says “It’s not unusual

to end up with a business through such an opportunity or because you inherited it, but it still takes an entrepreneurial mindset to commit

to that route.”

What factors do entrepreneurs consider most inﬂ uential in their success as business owners?

Sheer determination to succeed is considered

by far the most important element in success, with 62% of respondents citing it Perhaps surprisingly, bearing in mind the ebullient character of many high-proﬁ le wealth creators,

Entrepreneurial driving forces

1

True entrepreneurs are ambitious, restless

and looking for new challenges; they’ve always wanted to

do their own thing and hate to be constrained

I think that the inclination

to break the mould and the desire for success, including

ﬁ nancial success, tend

to go hand in hand.

Stephen Unwin Founder of Cawston Press, Business coach with the Actioncoach franchise

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few respondents (8%) claim any innate talent for wealth generation, and only 12% put it down to a hearty appetite for risk

However, Jonathan Haward, founder of the property search ﬁ rm, The County Homesearch Company, and, more recently, of the online memorial service, Friends and Relations, makes the point that anyone who sets up their own business has to be a risk-taker “The important

thing is that it is a calculated risk and you have all your ducks in a row when you do it,” he adds

As noted, accessible wealth can be an elusive concept for many business owners, particularly those in the early stages of business growth Almost one-third (29%) of respondents say that the need to reinvest proﬁ ts presented a challenge

to creating personal wealth from their businesses during that time

Ability to be my own bossPersonal satisfaction in my workFinancial independence

A better personal lifestyleSeizing opportunityBeing able to create something

new/innovativeFinancial security in retirementEnjoyment of making moneyAbility to retire earlyPersonal developmentFinancial security for childrenBeing able to contribute to theeconomy/society (eg, through

employment, etc)Being able to help others(eg, through philanthropy, etc)

Status

Now running business When starting business

What were the main motivations for you to start your business and create wealth?

What are the main motivations for you to run your business and create wealth?

(% respondents)

Chart 1

Note Figures do not add to 100% as respondents were able to select up to 3.

Source: The Economist Intelligence Unit

43% 45% 30%

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But while the need to plough everything back

into the business may be a short-term irritant, it

is likely to be viewed as an inevitable step in the

growth process “Our focus is very much on the

business and growing it,” Mr Hodson says “On

that basis we put everything we can back into it,

taking a salary that covers our day-to-day living

costs, but sadly not much else.”

Mr Haward takes a similar view that continuous

investment is essential, particularly in technology

and data security “I can’t really say that I have

had much conﬂ ict between taking personal wealth

and investing into the business, because I so

enjoy it,” he says “I get a lot of job satisfaction

when I can see a business investment is paying

dividends in terms of improved quality.”

On the whole, respondents perceive their biggest

challenges in amassing wealth to be at a macro

rather than a micro level Mr Haward cites tax as

the biggest disincentive to running a business

in this country “We have to employ people

speciﬁ cally to ensure we comply with the tax

legislation,” he says “It’s expensive and there

are huge penalties if you’re late It’s a massive

turn-off.”

But other interviewees are more sanguine Both

Mr Hodson and Mr Unwin accept their personal

and business tax obligations as being “in the

nature of success”

“Some companies I’ve coached have received

penal tax bills, especially in the downturn, after

a previous much more successful year,” Mr Unwin

says “Those did cause headaches, but HMRC [HM

Revenue & Customs] showed some leniency and

was able to arrange payment plans.”

Simon Deakin, assistant director of the Cambridge Centre

for Business Research (CBR), points out that there are many

regulations that help small businesses, but their effects

may not be particularly visible “A lot of corporate social

responsibility is about maintaining the reputation of the

brand, demonstrating accountability, being seen to observe

industry standards and paying tax,” he explains “Of course

businesses want to compete, but no one beneﬁ ts from a race to

The government has also implemented a ‘one in, two out’ requirement, which means that for every regulatory cost imposed on businesses, government departments must

Chart 2

Which of the following factors do you believe have been the most influential in helping you achieve your business success?

(% respondents)

Source: Economist Intelligence Unit.

Determination

An understanding of money

from an early ageUniversity educationIndependence from

an early ageModest family backgroundSchool educationPeer groupHigh appetite for riskInnate talent forwealth generationStrong family tiesSupport from individualfamily memberFinancial advice (from banks,accountants, advisers, etc)Local business networksWealthy family background

7%

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implement savings worth double that sum “This

is a major culture change that puts Whitehall

on the side of business,” the BIS spokesperson

claims

BIS has evidently had some success in its

campaigns to reduce the burden of bureaucracy—

the spokesperson ﬂ ags up the fact that in 2012

the World Bank ranked the UK seventh out of 183

countries for ease of doing business, “meaning

the regulatory environment in the UK is open to

starting and operating a business”

Despite headlines about small businesses being

choked by a lack of readily accessible ﬁ nance,

only 10% of survey respondents say that they

have been hamstrung Mr Hodson makes the point

that the banks are ready to lend, but corporate

borrowers have to ﬁ nd the collateral—typically

their own homes—to back their loan He and his

co-founders were lucky in that they were able to

call upon investment from friends and family, and

also received some venture capital input; they

were not prepared to put their family homes on

the line

But Mr Unwin maintains that the biggest

challenge for a lot of his clients is simply their

overly cautious mindset “A lot of what I do as

a coach is to equip business owners with the

business skills and tools for growth in order that

they can realise their full potential and greater

rewards; better skills gives them the ability to

make better decisions and often encourages them

and gives them the conﬁ dence to move forward

and take new investment opportunities —the

recession has sapped their conﬁ dence,” he says

Beyond the ﬁ nancial issues associated with

running a business, the survey identiﬁ es other

drawbacks to life as a successful entrepreneur

Too much commitment, in terms of long working

hours and work pressure, is the prime culprit

Chart 3

What are your greatest challenges when creating personal wealth from your business?

(% respondents)

Government policy (eg, taxation)

An underperformingeconomic environmentHaving to reinvest profitsinto your businessKeeping personal and professional

finances separatedAmbition (eg, business takespriority over lifestyle)

I do not face a challenge in this area

Fear of failureLack of corporatesupport networkKeeping personal wealthseparate from yourbusiness activitiesNote Figures do not add to 100% as respondents were able to select up to 3.

12%

5%

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Women entrepreneurs account for only 16% of survey respondents, and are also much more skewed to the lower echelons in terms of personal wealth But that imbalance may

be explained in part by the fact that women respondents also tend to be younger and therefore to have had less time to accrue wealth

Overall, entrepreneurial energy and opportunity appear to be things that most people still come to later in life—only 6% of respondents are aged less than 40 and three-quarters (74%) are aged between 50 and 70

The survey also provides clear evidence of the strength of the north-south divide as far as personal wealth and SME activity are concerned Two-thirds (66%) of respondents are based in London and the South In contrast, less than 9% are located

in the Midlands, 8% in Yorkshire and the North, and 7% in Scotland

Given the entrepreneurial legacy of these regions, such pronounced disparities raise the question of what could be inhibiting business growth and wealth creation there Less access to start-up resources, poorer infrastructure, a less-dynamic business environment and less-prosperous local markets might have something to do with it, suggests Mr Unwin

It is also unsurprising that the business focus of today’s entrepreneurs has shifted away from traditional areas such as retail towards the service sectors Almost one-third (31%) of respondents are involved in professional services

The number of entrepreneurs in Britain may be rising in

the 21st century, but the gender and location proﬁ le of

respondents indicates that as yet there isn’t equal access to

What is the approximate value of your personal

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Business owners have a strong sense that their role is an important one in social terms—93% of respondents believe that entrepreneurs make a positive contribution to society

This conviction is most pronounced among those with more than £2m in personal investible assets (98%), and also among those who have set up four or more businesses over the course

of their career (100%) That may be because they are able to take a longer, less-introspective perspective on the wider impact of their business;

less generously, it could also reﬂ ect a tendency towards self-aggrandisement among longer-established entrepreneurs

There is also a perception that social problems are increasingly being identiﬁ ed, managed and,

in some cases, resolved using entrepreneurial principles Overall, 57% maintain that social entrepreneurship is on the rise, with women particularly aware of its growing impact (71%)

When it comes to active business engagement with wider issues, respondents are less committed Less than half (46%) say that they actively consider the social impact of their business, with a similar proportion actively concerned about the environmental impact

According to the BIS spokesperson, however, it

is increasingly the case that businesses do go beyond their minimum statutory obligations in various areas, including social and environmental issues “This may have a short-term [dampening]

effect on proﬁ t, but the motivation for undertaking such activity is rooted in a more long-term, sustainable ambition,” she says

Entrepreneurs and social responsibility

But as Mr Haward observes, in a small business, decisions to do with social and environmental responsibility are likely to be a reﬂ ection of what makes ﬁ nancial and business sense “We recycle and have a travel policy involving fewer

fl ights and more train journeys,” he says “But although these are green policies, the decisions are partly driven by the bottom line; the two are often linked.” In fact, recycling is the area that has seen the biggest increase among the entrepreneurs surveyed, with 71% currently doing so compared with 39% fi ve years ago Entrepreneurs have increased their active social contributions in the past fi ve years in a range of areas, although there is wide variation in levels

of activity

Two-ﬁ fths of respondents contribute their own

or their business’s time to local organisations

or charitable causes Time is donated most generously by wealthier individuals (62% of those with more than £2m in personal assets), who may be less personally involved in the day-to-day operation of their companies

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Mr Unwin observes that companies tend to

feel some responsibility to support local good

causes, and also have a certain self-interest in

doing so, particularly if they trade with the local

area “They do it in part to foster a good working

relationship with their neighbours,” he says “But

overall, the smaller the company, the less spare

money or time there is.”

In contrast, other contributions such as

apprenticeships (16%) and business support

groups (15%) are less popular Mr Haward makes

the point that community-focused business

organisations such as the Round Table do a lot of

good work, but membership fees are considered a

non-essential in these straitened times

So what form do these social contributions take

in practice? The idea of support for newcomers is

an appealing one among interviewees Mr Unwin,

for instance, does not charge for his coaching

expertise if clients are young, enthusiastic and

keen to get his help with their business, but

cannot afford to pay

Mr Haward, meanwhile, is providing paid work experience for two young people as part of the Unlocking Cornish Potential scheme “I think we have done the right thing in going through the ofﬁ cial work experience channel, but we would have been much better off ﬁ nancially if we had offered unpaid internships,” he says

For Mr Deakin’s Cambridge community, the involvement of members of business associations and the Chamber of Commerce with the CBR’s research and initiatives has been an important factor “Once their business is established, a lot

of local business people want to be seen to be giving something back, in this case by sharing their time and expertise with the university and other businesses,” he says

They are likely to raise their own standing in the business community by doing so, but as he observes, “there is not necessarily a conﬂ ict

in having some self-interest in following a particular course of apparently altruistic action”

Chart 6

What are you currently doing to contribute to society? What did you do to contribute to

society five years ago?

(% respondents)

RecyclingDonate to local organisations

Contributing hours of personal /

business time to charities

Offering apprenticeships

Members of focus groups in local

economy (ie, sit on local council)

Corporate Social Responsibility days

(eg, fund raising days)

Other

5 years ago

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Again, however, smaller businesses tend to be hard-pushed to contribute in this or other ways because they are short of both ready cash and free time “If you can make some kind of local contribution where you can see its value, then that’s a rewarding idea, but I’m not able to do that while growing a business and bringing up three kids,” says Mr Hodson

So are business owners really giving enough back

to society? Mr Haward stresses that they already play key roles and should not be automatically expected to do more “We provide employment,

we pay and collect taxes—what more do you want?” he says

That perspective is widespread, as is evident from the ﬁ ndings of the survey when respondents

are asked to make two selections as to how they would spend their free time if they had more of it

as a result of selling the business

Travel is the big attraction, selected by almost three-quarters (72%), but around 30% say they would spend more time with their family, and a similar number would focus on leisure activities

Women are less interested in leisure pastimes (18%) than in more family time (39%)

Signiﬁ cantly, only 14% would take on an advisory role in another business—a surprising ﬁ nding in light of earlier comments by interviewees—and only 14% would look for philanthropic activities

Nonetheless, Mr Unwin believes that philanthropy is becoming more common in the

UK “I think that even though times are harder, those who are well off see that they’re lucky and want to share it,” he says But UK philanthropists

role in another business

I would never sell

Source: Economist Intelligence Unit

Male Female

If you have (or were to have) more free time as a result of

selling your business, how do/ would you spend it?

What proportion of your wealth do/

will you give to charitable causes?

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do not have the tax incentives that are in place in

the US

Smaller-scale charitable giving is widespread

among entrepreneurs, however Only 14% of

respondents donate nothing to charitable causes

(compared with 45% of the population at large

in 2011/12), although most (69%) give less than

5% of their annual income Women are more

likely to give a higher proportion, with

one-quarter of female respondents donating between

5% and 30% of their income to charity, compared

with 15% of males

In contrast, charitable bequests are much less

commonplace—overall, 44% of respondents

have made no charitable provision in their will,

although a further 40% plan to leave up to 10%

of their estate to charity

the world for a huge range of activities, from gardening for an elderly neighbour or cleaning beaches to donating blood “It shows there’s

a willingness to volunteer time, even though people don’t have much money to spare generally,” says Mr Haward

Following Mr Haward’s charitable trek to Chile, employees at the County Homesearch Company are also offered a four-week sabbatical after they have worked there for ﬁ ve years, provided they use the time to go on a fund-raising adventure trip

Although there is a clear sense that SME owners

have plenty on their plates simply running and

growing their businesses, it is equally clear that

many people would like to give something back

to the community, whether on an individual or a

corporate basis

Mr Haward, who is based in Truro, Cornwall, was

involved in setting up the Jubilee Hour project,

whereby companies or individuals pledged an

hour doing something charitable or helpful to

mark the Queen’s Jubilee year in 2012 More

than 2.75 million hours were pledged around

Innovative social contributions

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Is there a mismatch between the positive perceptions of the role of wealth creators in society and the extent of formal support provided

by the government for entrepreneurs starting out and existing businesses?

The present government has talked a lot about its commitment to an entrepreneur-friendly environment, not least because of the importance of grassroots growth in kick-starting the sluggish economy “We know that our entrepreneurs drive growth, so we will continue

to do everything we can to help unleash and unlock entrepreneurs’ potential,” said business

The role of government

3

minister Michael Fallon in October 2012 To that end, he cites “the additional tax relief for angel investment, reforms to employment law, investment in business mentoring and further cuts in red tape”

But survey respondents remain unconvinced Less than half (45%) agree that the government recognises the contribution that entrepreneurs make to society and one-quarter actively disagree Younger business owners (aged under 40) are more positive in their perceptions of government support, perhaps because they have had more exposure to recent state initiatives, whereas older entrepreneurs rely more on the private-sector contacts they have built up There is even less conviction that the government actually encourages businesses to contribute

to society, with over one-third (36%) of respondents sitting on the fence and only 10% agreeing wholeheartedly

However, Mr Deakin makes the point that legislation is not the way forward in this respect

“The government shouldn’t stop taxing or regulating, but it does need to persuade ﬁ rms

to embed good practice within their business strategy,” he says “That’s not easy though—it requires a long view.”

The BIS spokesperson notes that in December

2010 the Prime Minister set out his vision for corporate responsibility under the banner of Every Business Commits This framework focused

on ﬁ ve areas in which businesses could make a difference:

 Creating jobs and developing their workforce skills

Strongly agree

Somewhat agree

Neither agreenor disagreeSomewhat disagree

Strongly disagree

Male Female

Do you agree or disagree with the following statement? Government

recognises entrepreneurs’ contribution

to society(% respondents)

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