If Isambard Kingdom Brunel were alive today, would Google be British? While this conjures up delightful images of steam-powered servers, it also raises an important question. Why has the nation that kicked off the industrial revolution produced so little relative to the US in the digital revolution? What happened to the spirit of those entrepreneurial engineers of the 1800s?
The UK FTSE100 index has only two software businesses, Sage and Autonomy. For the future prosperity of our children, we should have at least five. So what are the factors that have held us back?
Historically one can turn to the economists, though this is slightly dangerous. As a mathematician, I believe in the economists’ theorem: “n economists in a room results in n+1 opinions”. Some will tell you the decline started in the Edwardian Age, when the offspring of the original entrepreneurs were too busy playing county gentlemen to understand or run new businesses, and so neglected investment and innovation, leaving the door open to the new superpower on the block in the form of the US of A.
This might all be a bit easy. What about the cultural issues? As early as 1852, Charles Babbage, the creator of perhaps the first analogue computer said, “Propose to an Englishman any principle, or any instrument, however admirable, and you will observe that the whole effort of the English mind is directed to find a difficulty, a defect, or an impossibility in it. If you speak to him of a machine for peeling a potato, he will pronounce it impossible: if you peel a potato with it before his eyes, he will declare it useless, because it will not slice a pineapple”.
More recently, there have been other issues: lack of angel financing, that first £30,000 to get an idea off the ground; the limits of the UK venture industry; the treasury’s difficult approaches to things like employee share options, often more obsessed with one fat cat tax dodger than an entire industry. Our capital markets have failings too – it wasn’t possible to list Autonomy on the London market: instead it had to list on Europe’s EASDAQ due to lack of long-profitable trading at the time.
These days technology businesses’ valuations on the London market are lower, leaving our companies open to takeovers from the US. The shares are often hyper-volatile and rumours and misinformation can do more damage as background knowledge of technology is still growing relative to the US. This and the regulator’s light touch also aid the small minority that likes to manipulate shares to be more active than elsewhere. All this is very damaging to UK tech firms.
Players like ARM (with its iPhone chip designs) and Autonomy at least prove that the pipe from UK startup to world beater is not blocked, but how do we increase this trickle to the gushing flow of the US?
It’s not the raw materials. Our universities, despite all the current funding controversies, produce graduates as good as those in the US. Indeed on a slow evening in Silicon Valley, I have no problem finding a Brit to go for a drink with – many Valley firms’ engineering departments are full of them.
The other side of this equation is that very few Silicon Valley companies are started by natives of the place. The Valley acts as a magnet drawing in the best and brightest from around the world. A South Korean turning up in Palo Alto may found a business that will employ thousands of Americans and pay billions in tax. This is a trick we miss as we do not differentiate between general immigrants and the world’s brightest and best experts. We need to welcome them and reap the benefits of the employment, inward investment and tax receipts they create. The government has started to understand this and has introduced the entrepreneur’s visa scheme, but it’s only a first step.
So what can we do? Firstly, we must appreciate how vital companies that are part of tomorrow’s industries are as a component for a prosperous, future UK and treat these issues as a priority. Secondly, address the angel funding gap by targeting some of the existing ideas such as enterprise investment schemes to create a startup culture. And thirdly, address the issues in our capital markets by education and, where necessary, a more dynamic approach to dealing with issues around highly-valued volatile stocks like those found in technology.
We have the raw material – the creative, innovative, wonderful people. Now let’s make the changes that Brunel would have approved of so we can create the virtuous circle of success that drives people to set up technology businesses, invest in them and grow them in the UK.
The UK must not become a museum to the glories of its past. For our children, Brunel should not be about the history of looking at his achievements, but rather them looking to his spirit of ‘can do’ and taking it to lead us into the future.
Mike Lynch is the founder and CEO of UK software company Autonomy