Thinking big

1. — What is an entrepreneur worth? By David Sax — Is there value in creating jobs, generating revenue (and taxes) or building new products and markets? Yes and more: it’s about human fulfilment too. And that’s why we need entrepreneurs now more than ever. 

As the coronavirus pandemic upends businesses around the world, many have been forced to examine the worth of entrepreneurship. The companies affected by the outbreak span industries and geographies, and range from global firms employing hundreds to freelancers working for themselves. But regardless of scale, many saw work dry up seemingly overnight.

Governments and other organisations have responded with loans, grants and financial assistance, arguing that much of the economic health of our society rests in the ability of small businesses and entrepreneurs to continue providing jobs, paying taxes and growing gdp. There is no shortage of data about the importance of entrepreneurship to every kind of economy. In fact, it has become somewhat of an obsession in recent decades, as entrepreneurship became a buzzword tied to sexy start-ups, technological innovation and the promise of transformative riches.

But as someone who has spent his career writing about entrepreneurs of every type – wizened Jewish deli operators in north London, Dutch apple farmers in rural Ontario, inventors working on laptops in Brooklyn cafés, informal popcorn vendors on Rio beaches and African-American hairstylists in New Orleans – I can tell you with certainty that the primary value of entrepreneurship is not money.

The vast majority of entrepreneurs are driven to go out on their own for non-financial reasons. Some have a burning idea that they simply cannot get out of their heads. This was the case for Florian Kaps, an Austrian biologist who decided, against all logic and financial sense, to save Polaroid’s last instant-film factory when the entire film-photography business was dying. Kaps then opened a combined studio, shop, performance space and café in Vienna called Supersense that became a sort of global headquarters of the analogue resurgence.

Others, such as the innumerable Syrian refugees who have opened restaurants around the world in recent years, became entrepreneurs because it offered them not just the promise of an income but also a way to regain control after years of dislocation. “We are done working for other people,” Husam al-Soufi told me, on the back patio of Soufi’s, his family’s restaurant in Toronto. When I asked him whether he would consider taking a job if the business failed, he said, “A job? Never.” The war had taken away his home and his previous career. Entrepreneurship had restored his freedom and renewed his sense of agency despite the uncertainty that came with it. That empowerment was worth more than any salary.

There are entrepreneurs who are driven by their values: by working for themselves they are able to shape their business around their beliefs. Take, for instance, Patagonia, whose founder, Yvon Chouinard put people and planet ahead of profits from day one, dictating everything from the company’s childcare facilities to its choice of materials. Or think of restaurants that donate a portion of their food to soup kitchens, or the hairdresser in a low-income area who never asks twice if someone has trouble paying, saying, “Don’t worry, you’ll pay me back when you can,” because they know how much a haircut means to that individual’s self-worth.

Yes, all of these entrepreneurs wish to succeed financially. They want to profit from their work and grow their businesses. And, of course, that work contributes to our economies in many ways. But if we focus only on the monetary contributions, we miss the larger point of the soul of entrepreneurship.

The entrepreneur is not some variable in a spreadsheet that economists can fiddle with to find the right incentive or subsidy that triggers stock-market growth. Entrepreneurs are imperfect humans whose hopes and dreams, pluck and hustle are what motivate them to start something new and then to work at it year after year. They form the core of the communities we live in: the restaurants, cafés and shops that form the texture of our streets, the bakeries where we buy our bread and the hardware shop that will not only sell us sandpaper but teach us how to strip and refinish a coffee table.

That is what we are fighting for now, as they work to keep businesses alive in the face of unimaginable challenges. And that is what we need to keep in our hearts as the next generation of entrepreneurs emerges, filled with ideas and hope, ready to accept the risks to gain all that entrepreneurship can offer.

2. — Did the Victorians invent the idea of Amazon? By Adam Hart-Davis — You don’t have to go far back in time to find evidence of the allure of browsing and buying goods from home. Perhaps it’s time to rethink the online versus “traditional” retail debate. —

Amazon is looming over our lives now as never before. Housebound folk, bored and frustrated, not only get groceries delivered to their doorsteps but also try to fill the empty hours by shopping online. Business was already booming prior to the pandemic, of course: in New York, trucks were delivering 1.5 million packages every day in 2019. Yet global demand has now increased so much that Amazon has had to hire an additional 100,000 warehouse and delivery workers.

In Manhattan there are no designated parking spaces for the trucks and so they have also been collecting half a million parking tickets a year. I don’t mind if a truck is delivering, say, £30 (€34) worth of groceries to each destination but the traffic problem is made much worse when Amazon sends a large van to my house bringing only a packet of paperclips. Cities all over the world feel the same traffic pressure: in pre-virus times, the UK’s average traffic speeds were 11km/h in Edinburgh and Manchester, and just 8km/h in central London. Delivery trucks are a major contributing factor to that discrepancy.

Today we think of Amazon and other companies that make home deliveries as innovative. But we should remember that the idea started more than 100 years ago. In Victorian times poor people had little money and rarely shopped at all but shopping was simple for the rich. They sent their cooks or housekeepers to do it or if they went themselves, they would often wait in their carriages while the shopkeeper brought his wares out to the pavement for them to inspect. Some households were luckier still for, if they were sufficiently good customers, they could telephone their orders and have the groceries delivered to their homes (by 1900 hundreds of thousands of homes had a phone).

Home deliveries had started even before the invention of the telephone in 1876 and they were not confined to groceries. In 1868 a weekly newspaper appeared: Bazaar, Exchange and Mart, and Journal of the Household. Following the advertisements inside, anyone could buy a huge variety of desirable things, ranging from talking cockatoos and forage for cattle to eiderdowns and charcoal for decayed teeth. There were also queries, letters and articles on everything from the latest fashions to wood-carving patterns and even travelling in Sicily.

Other magazines too were packed with advertisements for mail-order goods. In Settle in Yorkshire in the 1880s, Ellwood Brockbank ran The Warehouse (which was exactly that: a warehouse not a shop) and coined the expression “Fireside Shopping” for anyone who wanted to buy by post. The Lady magazine was delighted at the possibility of having “goods straight from the manufactory – no middleman’s prices intervening, the goods too being of the latest style and value”.

Charles Riley, of Moor Street in Birmingham, promised to supply bedroom furnishings direct from the works, carriage paid. Imperial Pottery of Burslem in Staffordshire offered a complete dinner service for six people at the amazing price of 21 shillings (about €1 in today’s money). Department store Swan & Edgar of London’s Regent Street, meanwhile, would supply spring and summer fashions: “Shop through the post. Every want supplied.”

People have always wanted to accumulate stuff, whether it be food for the larder or trinkets to show off their status. What’s more, people have always wanted that stuff now – or preferably even sooner – and Amazon responds to that demand. So while those rich Victorians might not have actually created the monster that is online shopping, they do seem to have ushered it in. Today we are merely seeing the inevitable result of human greed and acquisitiveness writ more widely.

One hundred and fifty years ago “Fireside shopping” was mainly for the wealthy but now the dreaded coronavirus has made all of us fireside shoppers. All you need is an internet connection and a credit card – and patience while you wait to see whether what you asked for is delivered.

3. — Does the Mittelstand need to change? By Markus Albers — Germany’s quiet ranks of highly specialised, often family-owned companies are uniquely well placed to weather economic flux. But recent global shifts mean that they might have to accept investment and input from abroad. 

A few years ago an engineer from the German industrial-robotics company Kuka told me about his experiences with the company’s new owner, Midea, a Chinese conglomerate that mostly makes home appliances. He had gone to China to witness the construction of its first robot-producing factory and was stunned by what he saw. “It took them just a few months to build; for us, it would have been years,” he said. According to German standards, the factory building was far from perfect – but it worked. The same would apply to designing robots, he said: he expected that his new Chinese colleagues would come up with prototypes in a fraction of the time that it would have taken him and his team in the past. Far from being dispirited by having been bought by a microwave company, he was thrilled by the prospect of combining German engineering with Chinese scale and speed.

This opinion contrasted sharply with the mainstream thinking in German media, politics and business circles. There, the sale of Kuka was seen as another sign of the erosion of what was once the pride and backbone of the German economy: its mighty Mittelstand. These are small-to-medium-sized companies (smes) that are often family-owned and have strict ideas about quality control, training and retention of employees. Many of them are what Germans call “hidden champions”, meaning firms that belong to the top three in their global sector in terms of market share, have less than €5bn in annual revenue and are little known to the general public.

The coronavirus pandemic has affected the Mittelstand just like any part of the global economy. But there is a good chance that smes will weather the storm. This is mainly because, as well as offering cheap credit, the German government implemented a tool that helped Germany get through the financial crisis: Kurzarbeit, or short-time working. This means that employers can reduce working hours – and pay – by up to 50 per cent while the government compensates employees for a major part of the difference. The result: companies don’t have to let experienced staff go and they can jumpstart business again when things look better.

But there are other concerns for smes. Some experts fear that the economic downturn will weaken otherwise healthy companies and might produce lots of vulnerable candidates for takeover bids – even more than there were previously. Indeed, before the pandemic, significant amounts of money were being offered to bring these companies under Chinese leadership. Since 2015, China has invested four times as much in Germany than vice versa. China wants to be the market leader in many “future-facing” industries and the quickest way to achieve this is to buy the best companies and technologies.

Another apparent threat to the Mittelstand comes from private-equity firms. They already control a surprisingly large part of Germany’s economy – with stakes in more than 5,000 companies totalling almost one million employees – and are setting their sights on smes (or “hunting the Mittelstand”, as German business newspaper Handelsblatt put it).

Why are proud Teutonic brands seen as such attractive takeover candidates? One reason is that sme efforts to reinvent themselves for a digital age often fail. They are good at making high-quality products but not great at marketing them digitally and building ecosystems of new services around them. Bigger international players want to acquire smes’ product expertise and talent pools, and then amplify these with their own global networks and hefty marketing budgets. Angela Merkel, Germany’s chancellor, is worried: she says that Mittelstand companies run the risk of becoming nothing more than “workbenches”.

So are the golden years of the Mittelstand over? Will these companies be gobbled up by international investors?

I believe there’s hope in the Kuka story. In fact, adding Chinese, or other high-technology, execution power to Teutonic ingenuity may sometimes be necessary to compete on a global scale. As the founder of a Mittelstand company myself, I believe that the German course to future success lies in combining traditional values with modern thinking. Firms such as my own should keep designing and crafting first-rate products but we need to apply our expertise in “making things” to a digital age. Successful German start-ups – such as Infarm (automated farming), Door2Door (rural ridesharing), FlixMobility (long-distance travel), Horizn (smart luggage) and n26 (banking) – already do this. The country’s economic future depends on translating its production prowess to new, sometimes less tangible, products. Yes, you can manufacture a great digital user journey too.

If we merge Mittelstand’s focus on precision and building one thing exceptionally well with the data-driven, fast-growth mindset of technology start-ups, we will come up with a new generation of champions – “hidden” or not.

4. — What is the macroeconomic effect of the pandemic? By Christopher Cermak — How will the post-pandemic economy be different?We’re not placing bets but here’s a considered set of predictions about the big shifts to expect for businesses, consumers and governments. —

The events of 2008 were different. There was heaps of blame to go around and far-reaching conclusions to be drawn. Entirely new financial regulatory architectures and multilateral institutions, such as the g20  summit, were set up as governments vowed to never let such a man-made crisis happen again.

This time there’s no easy target to blame for the epidemic (though many will try) and no obvious consequential actions to be taken (aside, perhaps, from stocking up on medical supplies). There’s a version of this where life carries on as normal. In theory, at least, a sudden shock to the global economy – even a complete standstill that lasts for months – shouldn’t have a lasting impact. Why would we change our regular habits once we can be out on the streets again, dining with friends and business partners, flying to far-flung lands to check out that great spa hotel or trade show, visiting our favourite high-street or boutique shops? What, exactly, needs to change about any of that?

In reality, though, such thinking is probably idealistic. “What we are expecting is that several longer-term trends that we were already predicting will accelerate,” says Paul Donovan, chief economist at Swiss bank UBS. And while it’s hard to predict exactly what will happen, there are some early signs of shifts that could be here to stay – for businesses, consumers and governments.

Let’s start with the obvious: unfortunately there will be fewer businesses. Despite trillions being spent by governments around the world to help alleviate pressure, many companies, small businesses in particular, are unlikely to survive. Consolidation in certain industries – travel chief among them – is likely as cash-strapped companies try to pool resources. But there are some less obvious consequences for surviving businesses. For one, Donovan predicts a build-up in inventories – a reversal of what happened after the global financial crisis of 2008, when many companies believed that a key lesson was the need for flexibility. The epidemic has seen many factories grind to a halt and supply chains struggling to cope under the strain of demand for items. The lesson that some companies take from this could well be the opposite of flexibility: it’s not a bad idea to stock up on goods to ensure that there’s enough inventory in your warehouses, especially in case of a second or third phase of the outbreak down the road.

Supply chains are also likely to be affected more broadly; expect them to shorten. Yes, we live in a globalised economy and we’re unlikely to see that fundamentally changing. But it is still to be expected that some companies will work to simplify their supply chains where possible – perhaps build some things domestically or at least closer to home. It’s one way to avoid disruptions in the future and a shift that is worth thinking about if you’re a supplier (don’t cold-shoulder your international clients but do consider knocking on your neighbour’s door for some extra business).

As for consumers, there’s one key factor to remember: habits, once altered, don’t necessarily return to their previous patterns. That goes for two things in particular: online shopping and home working. If you’ve registered for online shopping for the first time during this epidemic, you’re likely to return to it even once physical shops reopen. Donovan points to the Sars outbreak in Asia in 2003, which boosted the early days of online shopping on the continent. Similarly, if you’ve developed a taste for home working then you’re likely to prod your employer to allow you that flexibility more often. Donovan cites the London Olympics in 2012, when many in the city got a taste for remote working.

What do these shifts mean for companies? Retailers that do best in the post-epidemic economy will offer a more comprehensive blend of online and in-store options, known as omni-channel shopping. Carsten Brzeski, chief economist at German-Dutch bank ing, predicts a lasting decline in demand for commercial property – due both to home working and less in-store shopping – and says that investment in broadband infrastructure might increase to make remote working easier.

Then there’s the role of government which, in a word, has grown. Not only might many companies find themselves with the government as a shareholder or major creditor but society’s expectations of what a government can and should do for its country’s citizens have changed too. In the US and elsewhere, statutory sick pay and broader social safety nets could gain momentum, while salary cheques handed out by governments during the epidemic could open the door to more conversations about universal basic income.

In Europe, the burden on some national governments, such as Italy’s, forced eurozone countries to consider once-unthinkable forms of common financial aid. Despite insistence that these were one-time emergency measures, it’s hard to imagine that they won’t change how eurozone members work together in future. Of course, this is speculation – there are a lot of “coulds” in all of this, as Brzeski says – but it’s clear that the global economy will never look quite the same again.

5. — Direct-to-consumer businesses: what went wrong By Hamish Anderson — The advantages of selling straight to your customers are clear but they’re not enough to deliver exponential profits in all conditions. Now is the time to get real about online retail. —

The past decade saw a boom in direct-to-consumer (dtc) brands: companies that manufacture and sell their own products, mostly online, through their own channels instead of via wholesale. But even before coronavirus upended the economy, there were signs that such businesses might be stumbling. 

Ty Haney was removed as ceo of her athleisure company Outdoor Voices; the share price of Casper mattresses dropped precipitously after it went public; and digital-first menswear company Bonobos laid off employees as its parent company, Walmart, said it expected to lose $1bn (€913m) in its e-commerce this year. The pandemic means that people are staying at home, glued to their phones and shopping online. This should be the time that dtc brands triumph. But is it actually the moment when we realise that they were built on shaky foundations?

One disadvantage dtc companies have faced is an unusual cashflow problem: too much money. “The first and second generation of dtc brands launched [in the wake of] massive technology and software deals,” says David Heath, ceo of online sock brand Bombas. “The venture-capital firms (vcs) had so much money that they had to find places to deploy it and they tried to replicate the success they had with tech, saying ‘Here’s this thing, direct to consumer; it’s leveraging technology.’”

“There’s a misalignment between venture capital and building a brand,” says Ryan Babenzien, ceo of dtc trainer brand Greats. “vcs want to deploy capital and get a return in seven years: that goes against the ethos of building a brand. We’re seeing the result of that. Even great brands are getting absolutely hammered after their ipos.”

In part, that’s because ipos were the goal in the first place. Many vc-funded companies seem designed to sell shares not products.vcs might not care if a brand works in an efficient way but people who buy stocks seem to. Casper sells mattresses, which customers only purchase every eight to 10 years. They’re heavy and bulky, thus expensive to store, ship and handle when returned – free to the customer – at the company’s expense. No wonder potential stock buyers didn’t think the brand was worth the $1.1bn (€1bn) valuation vcs gave it. And Casper’s disappointing ipo happened before coronavirus caused the US stock market to plummet. It will be interesting to see what happens when companies such as luggage brand Away and Silicon Valley’s favourite footwear company Allbirds – each valued at more than $1bn (€1bn) – go public. The outlook can’t be all that sunny.

Admittedly, some dtc brands have done well. Dollar Shave Club, a grooming brand, launched with modest funding in 2011, had annual revenue of $240m (€222m) by 2016, then sold to Unilever for $1bn (€921m). One of its competitors, Harry’s Razors, only missed out on a similar deal because it was already too successful: consumer products giant (and razor-maker) Edgewell planned to buy Harry’s for $1.37bn (€1.25bn) but the US Federal Trade Commission blocked the acquisition because it was concerned about the resulting monopoly.

Like razors, socks are a frequent purchase, which worked well for Bombas: it racked up more than $170m (€157m) in revenue last year. “Being dtc allows us to tell a story about a product that is often an afterthought,” says Heath. Bombas’s origin story is based around the need for socks among the homeless (the company donates one pair for every pair sold); it revealed this in a three-minute video on its website that Heath says led to 150,000 sales in a month. “If you’re walking around a shop there’s no way that you’ll watch that video,” he says. “But online we have an unlimited canvas.”

Most importantly, perhaps, dtc sales enable brands to collect customer information. Sebastian Agace, ceo of online casualwear brand Alma De Ace, says that he can “monitor what people are looking at” and “finesse designs and marketing plans” accordingly. New York designer Thakoon Panichgul, who switched to a dtc model last year, is similarly enthusiastic. “You get real-time, concrete information direct from the customer,” he says. “When we were wholesale it was like pulling teeth to get any kind of sales information.”

With much of the world on lockdown, dtc businesses find themselves at a crossroads. On one hand, as Greats’ Babenzien notes, they are “equipped to work from home fairly quickly” and are “better off than companies that rely on wholesale because now all of that revenue is going to get wiped out”. Yet an economic recession will cause the venture capital spending spree to cease, so the dtc brands that survive will be the ones generating money by running a sustainable business, rather than by having a shiny new idea that attracts investment.

Relying on slow, steady growth is a surprisingly old-fashioned idea for this most modern breed of brand. “We’ve been wrapped up in this world where you’re led to believe that anything under $100m (€91m) of revenue is failure,” says Heath. “I hope people can reset their expectations and understand that if you’re doing $10m (€9.1m) a year that’s a really good business. You can run a healthy, profitable small company – that’s admirable.”

6. — Why we need more apprenticeships and fewer MBAs By Anna Codrea-Rado — The pandemic has highlighted the extent to which society relies on skilled technicians. The next step is to look at what can be done to train the workforce we need for the future. —

For too long, mbas have been the filmstars of business qualifications and apprenticeships the reality-show contestants: mbas are seen as glamorous and prestigious, while apprenticeships are viewed as a second-rate alternative to tertiary education (with regular university degrees somewhere in between). This attitude about the value of in-work training compared to degrees is backed up by statistics: in 2017 research by not-for-profit organisation Investors in People found that 62 per cent of young British people would rather do A-levels or go to university instead of an apprenticeship. It’s a worrying perception; according to the UK’s Open University, it has contributed to a skills gap in the UK that costs companies £6.3bn (€7.1bn) every year on, for example, recruitment fees and training.

The coronavirus pandemic has brought the urgent need for skilled workers into sharp focus. The UK government identified as vital in the fight against the virus healthcare workers and education professionals, among others. “Many of the crucial skills needed for these roles have been built through quality further education and training programmes, including apprenticeships,” says David Phillips, managing director at the educational organisation City & Guilds in London.

With universities currently closed and the UK government set to cap future admissions, employers and workers must rethink the role of apprenticeships. On-the-job training schemes will offer people who’ve lost jobs – as well as new entrants to the workforce – a chance to acquire coveted skills, without being saddled with hefty debts. According to Phillips, they will be vital to help people train, retrain and reskill in the most in-demand sectors such as data science, software engineering, marketing and business. “Throughout history, apprenticeships have provided the skills, passion and energy that have helped to build industries and economies,” says Phillips. “This is exactly what they will do after Covid-19.”

Sophie Adelman, co-founder of apprenticeship company WhiteHat, thinks that the university model, the shinier alternative to on-the-job training programmes, “is broken”. “[University] doesn’t provide people with the skills they need for the jobs of the future and isn’t serving the needs of employers,” she says. The sheer volume of students attending universities merely because an out-of-touch career adviser told them to has diluted these institutions’ value proposition.

Beyond university degrees generally, many people are specifically challenging the thinking behind mbas – the business of selling business education. In her book The MBA Bubble, Mariana Zanetti points out that while studies have shown that mba graduates earn, on average, significantly more than non-mba professionals, the mba is not necessarily the reason why. “Most mba graduates were admitted to business school because they had what it takes to succeed,” writes Zanetti, who received her own mba at Spain’s IE Business School. “They belong to a high-potential group of professionals, but they were already there before their business school picked them.” Additionally, a few years ago, Jeffrey Pfeffer, professor of organisational behaviour at Stanford’s Graduate School of Business (one of the world’s top business schools), told the Financial Times that he’s not convinced thatmbas are worth the money. “A degree has value only if the degree is scarce, and the mba is completely unscarce,” said Pfeffer.

If mbas and other university degrees are ubiquitous and apprenticeships are scarce, we need to address that imbalance. And fast. Adelman says that the pandemic has strengthened her belief that apprentices are a solution for the UK’s skills shortage. “Young people coming out of the crisis will be looking to apprenticeships rather than university because of the economic uncertainty,” she says. It’s time that apprenticeships were treated like the A-list qualifications they are.