Earlier this month we shared our latest report, looking at the behaviours of Technology, Media and Telecommunications (TMT) businesses heading into a period of economic downturn. The report highlighted some interesting trends, including the fact that more than a quarter of these firms expect the current economic environment to have minimal impact on their performance.

The Midlands business community is rich with innovation and technology-enabled firms, which makes it the perfect backdrop for assessing whether these trends ring true across the wider UK SME market, or whether there are regionalised differences.

In partnership with One Stop Business Finance, we invited a number of the region’s experts, from a variety of professional backgrounds, to discuss the impact of the current climate on businesses in the Midlands, as well as broader challenges including raising funding and attracting high quality talent.

Read the full round-up below…

Research suggests that up to ¼ of TMT firms consider themselves to be resilient to the current climate – is this reflected in the Midlands business community?

Discussion alluded to the challenges faced by the TMT sector more generally, however the general consensus was that Birmingham is well-positioned as a hub of thriving, resilient technology businesses.

With Birmingham Tech Week taking place earlier in the month, there was agreement around the table that the technology scene in the Midlands – both in terms of businesses based here and available talent – has dramatically improved during the past decade and continues to develop as more organisations move and set up shop in the region.

Elliott Watts at Integrity Group offered confirmation of the findings of the report: “A lot of the businesses that we serve, sit in the segment that do not expect an economic downturn to have significant impact, however they are also considering their investment into sales and marketing, growth and acquisition strategies,” attesting to the notion that TMT firms are fairly resilient in the face of crisis and look to capitalise on changing market conditions by making savvy strategic moves.

Martin Ward at Waypoint Partners also pointed out that a recessionary climate is great for businesses with propositions that can offer other businesses, or individuals, the opportunity to save money or increase efficiency of operations. In these instances, an uncertain economic backdrop is the perfect time to double down on sales and marketing investment.

There was also discussion around the concept of “disruptor” firms deleveraging ahead of a crisis, with James Martin from Azets advising that deleveraging is a sure sign of a forward thinking business leader creating headroom in their operations, citing a lack of forward-planning as the simplest reason that a business fails.

A disconnect between businesses and lenders

Despite a seemingly positive outlook for the region’s TMT businesses overall, there was agreement that from some in the tech space, getting funding is still a significant challenge.

Elliott noted that although the majority of the businesses Integrity Group work with are high-growth businesses, there are some with really impressive propositions that simply cannot access funding, even when they have been directed to various lenders and accelerator programmes.

“The businesses we work with have experienced significant difficulty in accessing finance too,” says Vernon Hogg at the GBSLEP Growth Hub, Access to Finance, which supports earlier stage SMEs and founders on their growth journeys. However, he advises that when the Growth Hub starts to engage with these businesses, it becomes clear that their business propositions have not been prepared well enough. “When they are asked about what they are trying to achieve, in what particular marketplace, their proposition, costs, overheads, routes to market, they don’t always have the answers, but these are answers that lenders will expect,” he says.

The point here is not about placing blame with the business owners, but emphasising the importance of education and supporting firms to articulately present their proposition during the fundraising process.

Funders perhaps need to be clearer too, about why they are turning businesses down. “Some of these businesses get lots of interest from lenders because they like the proposition, but no one will actually commit to funding them,” says Vernon. “It creates an environment where business owners feel they have spoken to every lender and exhausted every avenue, but haven’t come away with what they want.”

In a competitive environment, firms must prove their value

In this environment, businesses have to be stronger at making their value proposition clear, according to Martin. Given increasing economic pressure, lenders keep moving the bar when it comes to their lending criteria– and rightly or wrongly, this has a greater impact on the firms at the earlier stage of their growth journeys. A business could have a fantastic product or service, but if they cannot demonstrate the value effectively to a lender, they will not raise the capital needed to compete in such a turbulent trading environment. These firms will eventually run out of cash headroom and ultimately, fail.

Richard Fallon at Technology Supply Chain notes the difference here between a successful idea and genuine commercial value. “We see so much investment into product or service development and not enough into turning this product into a viable business proposition,” he says. “There seems to be a lack of advice for business owners on how they can develop a sales and marketing plan and without sales, it makes it impossible to raise funds. Eventually the owner runs out of steam and has to sell the company, along with its IP.”

Firms must prove their value to candidates, too

If competition is inflated in the funding market, this can only be matched by the desperate rivalry between firms to secure the best talent. The challenge for smaller and emerging TMT companies is appealing to the top level of candidates who can demand high salaries and extensive benefit packages from the more established players.

“As a general rule, start-ups cannot compete with the salaries on offer from the big firms,” says Matthew Shephard at Shakespeare Martineau. “But what they can do is offer share options as an incentive for both encouraging top talent to join, but also as a great employee retention tactic – encouraging them to stay at the firm and benefit from the start-up’s growth and success in the long-term via the exercise of such options later down the line.”

Education is important here though. “Do graduates or younger candidates understand what they are getting from share options?” says Jennie Davis, also at Shakespeare Martineau. “Do earlier stage businesses need to do more to highlight the appeal versus large compensation packages, if they are to successfully attract new graduates?”

There was further discussion regarding the education of the business owners themselves: “are we doing enough in the Midlands to ensure that business owners know there is plenty of talent here? We have excellent universities and a thriving tech sector, but if you didn’t already know that, would you be aware?” asks BOOST&Co’s Becky Blaymires.

No, says Laurie Smith at Transworld, who suggests that this kind of information is poorly transferred from the wider business community to those actually running companies. “Business owners are too focused on running their businesses to give significant time and energy to recruitment and researching where they can find the best talent,” he says, but this is when assumptions are made and local talent is potentially overlooked.

Local talent or not, the STEM skills shortage is still an issue

The challenges invoked by the UK’s STEM skills shortage are not new, but in a tough economic environment, businesses will be forced to make difficult decisions if high quality talent is not readily available.

“Many UK businesses already outsource technology roles to elsewhere in the world,” says Brett Stacey at Regent Assay. “Some of this is for cost saving purposes, but ultimately, they cannot hire these roles here, because there are not enough candidates with the right skill set.”

For Siobhan Lloyd at Springboard, this is where education must play a key role. “The push to get involved in a STEM career must begin much earlier,” she says, describing the role that exposure to STEM subjects has played in her own son’s educational choices. Discussion reflected on the fact that more often than not, medicine and law are still perceived as the key “professional” careers, despite technology jobs being highly sought after and usually well-compensated. A lack of understanding from parents as to the career routes available to technology students plays a role, but so too does a lack of role models who could provide guidance on what a technology career actually looks like.

But who takes responsibility for this? Jennie suggests it needs to be a combined effort between businesses, institutions and local government, all taking responsibility for engaging with schools so the inspiration to cultivate these skills happens much earlier than it does currently.

Taking responsibility: an issue in the funding market too

Working in collaboration could be a success story for the funding market too, according to Martin: “there is always going to be a funding gap to some degree, because lenders have to consider risk versus return in their investments. However if there were a way of government and lenders working together more collaboratively, it might be that upside could be considered in broader terms, for example local job creation and research and development advancements. Lenders are always going to focus on the financial upside, but if there were the option to work together with another institution, what might that look like?”

Whatever the drivers and challenges around funding, consensus in the room was that too often the question from business leaders is, “where can I get funding?” rather than, “which funding route is right for me?” It nods to the lack of education, lack of options and gaps in the funding market that have been alluded to throughout this discussion; all we can do is continue having these conversations so that we may work together to re-educate, improve understanding and support the success of even more exciting UK firms.

With thanks to the attendees:
Matt Vincent – BOOST&Co
Becky Blaymires – BOOST&Co
Rebecca Ennis – One Stop Business Finance
Helen Dale – One Stop Business Finance
Martin Ward – Waypoint Partners
Brett Stacey – Regent Assay
Richard Fallon – Technology Supply Chain
Vernon HoggBirmingham & Solihull Growth Hub
Matthew Shephard – Shakespeare Martineau
Siobhan Lloyd – Springboard
James Martin – Azets
Jennie Davis – Shakespeare Martineau
Laurie Smith – Transworld
Elliott Watts – Integrity

If you would like to take part in our next roundtable series, please reach out to Becky, Matt, or your nearest BOOST&Co representative.

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