Surfing the Long Wave Knowledge Entrepreneurship in Britain
Charles Leadbeater and Kate Oakley
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First published in 2001 by Demos The Mezzanine
Elizabeth House Contents 39 York Road London SE1 7NQ
© Demos 2001 All rights reserved Acknowledgements 7
ISBN 1 84180 045 7 1. Why entrepreneurship matters 9 Printed in Great Britain by Biddles Ltd Design by Lindsay Nash 2. The six stages of entrepreneurship 18
3. Entrepreneurial networks 29
4. Entrepreneurs and networks in action: computer games 42
5. Entrepreneurs and networks in action: animation 66
6. Knowledge entrepreneurship policies 81
Appendix: Main companies and entrepreneurs interviewed 99
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Acknowledgements
This report has taken almost three years to produce. We originally expected to publish it in 1999, after conducting a series of interviews with entrepreneurs and profiling the clusters and networks in which
they worked. In some respects we are lucky we did not meet our origi- nal deadline. Had we done so we would have presented no more than a snapshot of our entrep re n e u r s at a moment in their caree r . As it was,
we have had the opportunity to trace them through an extraordinar- ily uncertain, even tumultuous time. Our research started in Spring 1998, well before the dot.com boom
propelled a generation of young entrepreneurs into the limelight. For just over a year – early 1999 to the late spring of 2001 – it seemed as if entrepreneurs could build £1 billion businesses from scratch, armed
with little more than a few good ideas. Since the onset of the dot.com crash, which started with the steep falls on the Nasdaq high-tech stock ma r k et in April 2001, a far more sober and cautious mood has descended
upon financial markets, venture capitalists and many entrepreneurs. We have been able to trace a group of entrepreneurs through this upheaval. As a result we hope our findings will be both more interest-
ing and more robust. We have a large number of people to thank for their help with this project, which began with conversations with Sir Douglas Hague of
Templeton College Oxford, who gave us the idea to look at knowledge e n tre p re n e u rs. Ro ger Bake r, form e r ly of the Gat s by Charit a b l e Foundation, and Michael Pattison, its director, have been very under-
standing when the project took longer than originally planned. At Demos Tom Bentley has summoned up more patience than anyone should have to and Lindsay Nash has edited the text and designed the
rep o rt with her custom a r y prof essionalism. We should like to thank all the entre p re n e u rs who allowed us to inte rvi ew them, sometimes s ev e ral times. Between December 1999 and Fe b ru a ry 2001 Charles
Leadbeater worked as an adviser to Atlas Venture, the venture capital fund, and learned an enormous amount about the funding and devel- opment of high growth entrepreneurial businesses. He would like to
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Surfing the Long Wave
thank Chris Spray and the sta f f at Atlas Ven t u r e for their help. We have le a r ned from many people, not least the entrep re n e u r s we inter vie wed as well as Pe ter Swann, David Teece, Charles Hill, John Gray and
Fernando Flores.
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1. Why entrepreneurship matters
This repo rt aims to explode some of the myths that cloud our under- standing of entrepreneurship, confuse our attitudes towards it and provide misleading guides for policies to promote it. Put very crudely, entrepreneurship is an activity in which a part-
n e rship or team of people, combining diffe rent skills, identify an oppor tunity to create a new product or service and then mobilise the resources, both financial and human, to realise the idea.
This report, based on interviews over the past three years with tens of Br itish entrepreneurs, makes three main claims about the role of entrepreneurship in modern society.
Collaborative entrepreneurship Entrepreneurship is taking new forms: it is increasingly less individu- alistic and more collaborative. The traditional view is that an entrepreneur is either a struggling small businessman or a lone hero with the cha ri s m at i c qua l i ties to take
ris k s and persuade othe r s to back their judgement: Anita Rod d i ck, Alan Sugar or Richard Branson, for example. Our research shows that this stereotype is increasingly misleading.
While entrepreneurs are often be lone mavericks, entrepreneurshipis a far mo re structured, often team-based activity. Public policy should be less concerned with creating incentives for lone entrepreneurs and more concerned with promoting the conditions for successful entre- p re n e u rship as an act i vity. Entre p re n e u rship succeeds by pulling together the different skills and know-how needed to turn an idea into
a business, product or service.
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Surfing the Long Wave Why entrepreneurship matters
Successful entrepreneurial organisations never depend on a single younger generation, as it is a reflection of the financial and individual: they are the creations of partnerships and teams of people economic calculations they make. who bring toge t her the tech n i cal, commercial, marketing and fin a nc i a l skills needed to turn an idea into a business. An individual entrep re n e u r The entrepreneurial society may ki ck off the process by identifying the opportunity. In some cases A widespread capacity for entrepreneurship is increasingly critical for the individual entrep r eneur can go on to lead the team. However often a successful modern society. the founder entrepreneur plays a critical role only at the start of what Entrepreneurship is traditionally seen as an important tool for job tu r ns out to be a very long process of en t rep re n e u r ship invol ving tria l , cre a tion, both thr ough the growt h of mic r o-businesses and self-emp l o y- error, learning and discovery. ment, and th rough the cre ation of h i g h - grow th new businesses.
Several conclusions follow from this recognition that entrepreneur- Entrepreneurs are agents of change. By spotting new opportunities to ship is the pres e r ve of p a rt n e rships and teams rather than individuals. use re s o u rces more effe ct i v e ly, th ey help to shift the economy ’s resources from areas of low growth into areas of high growth. This is ● Ent repreneurs are highly individualistic. But to succeed they also why entrepreneurship is so vital to the flexibility and adaptability of have to be highly collaborative to pull together the other people open, market economies. However, the traditional focus on entrepre- they need to realise an idea. ne u r ship as a source of job crea tion is too narrow. It underest i m a tes the ● Founder entrepreneurs often spot an opportunity in a flash of economic significance of entrepreneurship and ignores its social and insight and move to exploit their ideas far more quickly than a cultural role. large organisation would. That is why entrepreneurship is associ- In an innovati o n -d r iven economy, entrep re n e u r ship takes on a much
ated with agility. The truth, however, is that entrepreneurship is greater significance. First, entrepreneurship plays a vital role in inno- a very time-consuming activity that requires great persistence. vation. Entrepreneurs excel at translating new ideas into products, Inv ariably is takes several years to combine the ingredients for a se r vices, businesses and orga n i s a tions. In fast- m o ving industries where
successful business. The dot.com boom of the late 1990s created new ideas emerge rapidly, large companies are frequently less able to the impression that entrepreneurs could make quick returns. absorb, adapt and use ideas than smaller firms. The speed and spread Most successful entrepreneurs have to wait several years for their of mo d e r n tec hnologies of co m m u n ic a tions, computing, softw a r e and
ideas to come to fruition. biotechnology means we are in a period of extraordinary entrepre- ● Ent repreneurs cannot afford to be loners. The idea of the entre- neurial opportunity, especially in high-tech and scientific fields. preneur as a lone inventor is utterly misleading. Entrepreneurs In industries such as computing and soft w a re, where new ideas
wo rk in partnerships, networks and clusters, to acquire ideas, em e r g e from many differ ent sources – small companies and large as wel l in f orma tion, contacts, rel a tionships and res o u r ces. Entrep re n e u r s as universities – people will disagree on the potential value of differ- are intensely social. ent ideas. Which will be the right way to incorporate computing power ● Ent repreneurs are motivated by profit but also by a sense of i n to clothing? Will open st a n d a rds such as Linux tri u mph ov e r achievement and independence in being able to create an organi- Microsoft’s Windows operating system? These disagreements are the sation with its own work-style, philosophy and products. The breeding ground for entrepreneurs who believe they can spot oppor-
creative and independent impulse behind entrepreneurship is at tunities that others have overlooked or ignored. least as important as the financial and commercial impulse. The The more rapid and fragmented the nature of knowledge creation rise of entrepreneurship is as much a cultural and social within an industry the more conducive it is for entrepreneurship. We
phenomenon, an expression of the more independent values of a are living through a period of heightened entrepreneurial activity in
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Surfing the Long Wave Why entrepreneurship matters
pa r t because modern societies inve s t so much in scientific res e a r ch and between employment and self-employment is blurring. A widespread innova tion. In industries where knowledge does not move so fast, for capacity for micro-entrepreneurship will be increasingly important to exa m ple more matu r e manufactu r ing industries or reg u l a ted industrie s an adaptive economy. such the law, there will be fewer new ideas, less doubt about the value Entrepreneurship thrives when people can think and act indepen- of those ideas and thus fewer opportunities for entrepreneurship. dently, qualities that are bred in open, democratic and pluralistic soci- Second, entrepreneurs spur improvements in productivity by chal- eties, with education systems that encourage young people to think lenging incumbents in established markets. Entrep re n e u r ial businesses cre at i v e l y. An education system tha t enco u ra g es conformi ty and discour- exploit falling barriers to entry to attack entrenched incumbents: they ages independent initiative will not encourage entrepreneurship. contest once cosy markets. Barriers to entry are falling thanks to four A society can only encourage entrepreneurship when it is open to main forces: dereg u l a tion in industries such as tel e c o m m u n ic a tions and people with talent, ideas and ambition who may come from outside the financial ser vices, which has allowed in new entrants; globalisation, es tablishment. Often entrep re n e u r s have unco n ventional backgrou n d s : which has encouraged competition from developing regions in the the y are rebels, drop - outs and dissenter s. Entrep re n e u r s frequ e n t l y cha l - world economy; the falling price of technology, which allows new lenge vested interests. In doing so they can help to erode established en t rants to enter markets with a much lower cost base than compa n i e s co nc e n t rations of po wer . An entre p re n e u rial culture is one mark of an w ith established pro d u ction lines; cor p orate strategies inc re a s i n g ly open society. based on extending successful brands into new markets, which for En t rep re n e u r ship also prom o t es social mobility, espe c i a l l y for rec e n t example has allowed companies like Tesco, the retailer, to enter finan- im m i g rants. The entrep re n e u r ial openness of the US is one reason why cial ser vices. it has at tra cted so much talent from around the world. Indian or
Even if entrepreneurial challengers do not succeed, their entry into Chinese immigrants cre ated almost 3,000 high-te ch companies in the market challenges incumbents to improve their performance. The California in the 1990s. The more entrepreneurial an economy is the value of e n tre p re n e u rship often shows up in the form of h i g h e r more it should create opportunities for immigrants and ethnic minori- pro d u ct i v ity in incumbent companies tha t have to fight off a cha l l e n ge . ties, the more attractive it should be to mobile entrepreneurial talent While many “dot.coms” have failed, for example, they have spurred and the better able it should be to sustain a multicultural society. many large companies to invest in E-business solutions to make them- A healthy society needs entrep re n e u r ial capacity to feed the learni n g , selves more efficient and responsive to customers. Large companies experimentation and renewal of the public sector as much as the increasingly need a capacity for entrepreneurship within their own private sector. The welfare state emerged not just from overarching ranks, to respond to these challenges. public policy initiatives at the close of the Second World War, such as
Entr epreneurship does not matter just for economic reasons: it also the Beveridge Plan and the 1944 Education Act. It also emerged from brings enormous social benefits. A widespread capacity for entrepre- a string of en t rep re n e u r ial atte m pts to crea te new schools, hospi tals and neurship will increasingly be seen as a mark of a healthy society. welfare schemes outside the ambit of the state, especially in the first
A society th at seeks to fo ster entre p re n e u rship must fo ster th e half of the twentieth century. It was the combination of far-sighted culture that feeds it: openness, meritocracy, democracy and adaptive policy making at the centre and entrepreneurial imagination at the in st i tutions. Entrep re n e u r ship will become more central to our society gras s r oots tha t paved the way for the modern wel f a r e sta te. In a society because more people are attracted to the independence and sense of of rapid cha n g e, an entrep re n e u r ial capacity within public services will achievement it provides. People are increasingly self-managing their be even more important. careers rather than relying on a corporation to do it for them. The line All entrep re n e u r s, in whatever walk of li f e, are in the fut u r e business:
they are attempting to chart new routes into the future for their busi-
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Surfing the Long Wave Why entrepreneurship matters
ness, or ga n i s a tion or industry. Entrep re n e u r s believe the y can do some- venture capital funds and encouraging pension funds to invest more thing diff ere n t l y and in the process, if on l y in a small way, the y cha n g e in venture capital. the way society work s. As Charles Spinosa, Fer nando Flores and Hubert Our analysis shows that we need a more systematic and comprehen-
Dreyfus put it in their book of the same title: entrepreneurs “disclose sive approa c h tha t draws toge t her economic and social policies, stret ch- new wo rlds” that people did not realise might exist. David Harvey, the ing from education th rough to business re g u l ation and fi n a nc i a l Marxist geographer, puts the same point a different way in his book ma r k ets. As a part of tha t the machi n e r y of gov e r nment needs an ove r -
Places of Hopewhen he argues that capitalism thrives not just on finan- haul, with a radical reorganisation of the main Whitehall department cial speculation but more fundamentally on a speculative capacity to involved – the Department of Trade and Industry – and a new govern- dream up different futures. ment-wide focus on entrepreneurship and innovation from the heart
This is why entrepreneurship is so vital to the health of society. of government economic policy-making in the Treasury. En t rep ren e u r s help to navig ate differ ent possible rou t es into the fut u re : Central reorganisation needs to be accompanied by the creation of d i ffe rent ways to communic ate, ente rtain, learn, save, shop, tra d e , new institutions, such as a Knowledge Bank to help large companies vote, tr eat disease or save the environment. Entrepreneurs create new finance promising developments in small companies. A stronger local ways for ward. For any society that is a vital capacity. and regional capacity for economic development will be vital as many of these issues can only be tackled close to the ground.
An infrastructure for entrepreneurship This policy framework should include these ingredients: Entrepreneurship has become so central to modern society that its pr omotion can no longer be left to the cha n ce emergen ce of cha ri s m at i c ● Building entrepreneurial capacity through education and skills, individuals with special qualities. We need a far more systematic and attracting entrepreneurial talent from abroad and helping comprehensive policy framework to spread entrepreneurial capacity groups with relatively low entrepreneurial activity – women, across society. employees over the age of 45 and ethnic minorities – to start
Tra d it i o n a l ly, entre p re n e u rship is cov e red by economic policy. businesses. Entrepreneurs are largely motivated by the pursuit of profit, the argu- ● Opening up entrepreneurial opportunity through a rigorous ment goes, so the main role of policy is to make it as easy as possible competition policy biased in favour of new entrants, including in for ent repreneurs to start and grow a business, for example by reduc- the public sector and highly regulated sectors such as profes- ing business regulations, and to make it as rewarding as possible for sional services them by lowering taxes. ● Developing entrepreneurial hubs, networks and clusters, espe-
There are limits to how far public policy can influence the level of cially in regions with limited entrepreneurial activity, to help entrepreneurship in a society, which is deeply influenced by culture, entrepreneurial teams to mobilise the resources they need to attitudes towards risk and also practical issues such as the availability turn an idea into a business, including access to finance, people of finance. However, even within those limits, public policy can and and corporate partnerships. should go substantially further in promoting a deeper, more widely ● Promoting entrepreneurship and innovation from within the distributed entrepreneurial culture in the UK. Since 1997 the Labour public sector to encourage the creation of new models for public government has introduced a range of policies that touch on entre- services from the ground up. preneurship, including relaxing some rules on stock options, encour- ● Improving the recognition and rewards for entrepreneurship by aging universities to create spin-off businesses, promoting regional further simplifying rules governing stock options in growing
companies and through the launch of an annual National
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Surfing the Long Wave Why entrepreneurship matters
Business Plan competition, akin to a Booker Prize for business, wit h different categories for school children, students and entre- The research preneurs over 50. The research for this report focused on a new breed of knowledge entrepre-
ne u r s who build their businesses almost entirel y on the exploita tion of id e a s D u ring a period of rapid ch a n ge and disruption, entre p re n e u rs and know-h o w. Over thr ee yea r s we inter vie wed knowl e d g e entre p re n e u rs in wea ve t oge t her the res o u r ces tha t make new prod u c ts, services and ways di f fer ent fields at differ ent sta g es of business development. (See the Appendix of living a practical possibility for many people. Entrepreneurs are for a full list of those interviewed.) We interviewed and examined the case agents of change, pathfinders who help to chart our transition from histories of : one kind of society to another. Their contribution is not just in creat- ● ing jobs or wealth. As William Gibson the science fiction writer put it: Eight scientific entrepreneurs who were running businesses based on “The f u t u re is here, it’s just not very widely distri b u ted ye t . ” formal scientific knowledge often derived from universities. These Entrepreneurs, at their best, help create and distribute the future. included Robin Saxby, chief executive of ARM, Edwin Moses of Oxford
Assymetry, Paul Drayson of PowderJect, Andrew Rickman of Bookham Technologies and Danny Chapchal at Cambridge Display Technologies. ● Ten internet entrepreneurs, among them Brent Hooberman of
Lastminute.com, Toby Rowland and Robert Norton, of Click Mango, Steve Bowbrick of WebMedia and Another.com. ● Seven computer games entrepreneurs, among them Jez San at
Argonaut, Peter Molyneux at Lionhead and Ian Stewart, former head of the Gremlin group. ● Seven animation entrepreneurs among them David Sproxton, co-
founder of Aardman animation, and several other leading British animators. ● In addition, we interviewed about fif teen entrepreneurs in cultural
industries such as design, television and film, among them Daljit Singh, creative director and co-founder of Digit, the award winning design studio, and Simon Waterfall, creative director of Deepend, the
web design company.
The aim of our res e a r ch was not to prof ile these entrep re n e u r s, nor to explore
their backgrounds and motivations. These entrepreneurs represent a new breed: they have built their businesses almost entirely on intangible assets su c h as know-h o w. Our aim was to examine what entrep re n e u r ship amounts
to in an economy in which the generation, application and exploitation of distinctive know-how is fast becoming the prime source of wealth creation.
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The six stages of entrepreneurship
Drayson realised that the idea’s potential would be made good only if they could mobilise and apply more resources. Drayson used his own funds to further develop the gun and to take out patents on powder
2. The six stages of entrepreneurship injection techniques around the world. He spent nine months in nego- t i ations with Oxford Un i v e rs ity over ow n e rship of the inte l l e ct u a l property rights.
Dr ayson realised the key to the compa n y was its intel l e c tual prop e r ty. Yet he also knew tha t strong patents on their own would not be enough. The Powd e r J e c t compa n y would have neither the res o u r ces nor the skills
to exploit the invention’s potential to the full. He set out to form part- n e rships with companies th at had the re s o u rces th at Pow d e r J e ct Paul Drayson could sense the potential as soon as the idea was explained needed: te ch n o l o g y, distribution, marketing, sales. Pow d e r J e ct has to him. Patients could have a painless injection delivered by a device the formed partnerships with more than a dozen pharmaceutical compa- size of a mobile telephone tha t sounded like something from Star Trek . nies, including Glaxo-W ellcome, Pfizer and Roc he to develop treat m e n t s A doctor would wave the device over the pati e n t ’s arm to deliver a trea t- delivered by the PowderJect. To turn Bellhouse and Sarphie’s bazooka ment in hundreds of pa rt i cles so small tha t the patient would not notice into a hand-held device, Drayson signed a deal with BOC to manufac- them. The device is a Powd e r J e c t. The way it was developed exe mp l i fi e s ture tiny helium gas cylinders. PowderJect is not yet launched as a many aspects of how knowledge entrepreneurship works. commercial product yet the company had a stock market valuation on
In 1992 Paul Drayson, a young entrepreneur who had developed and its flotation in 1998 of more than £600 million. sold a couple of businesses in the food industry, quite by chance met Powd e r J e c t exemp l i f ies many of the ingredients tha t make knowl e d g e Brian Bellhouse, a scientist at Oxford University who had the vision of entrepreneurship a success. the painless injection. Bellhouse and his colleague David Sarphie had Fir st, the compa n y is based upon disti n ctive know-h o w, the Bellhouse been working with gen e t ic i s ts at Oxford to insert gen e t i c mater ial deep and Sarphie res e a r ch, which took many yea r s to develop and is very hard into plant cells using a high-powered gas-gun. to imitate. Bellhouse began research on high-speed gases shortly after
As the gun worked on plants, Bellhouse conjectured it would also the Second World War. work on humans. He and Sarphie loaded the gun with micro s c o p i c salt Second, the inve n t ors did not sense the opportu n i ty the invention had particles. Bellhouse put his hand in front of the gas jet. The salt flew created. That only came from the entrepreneurs, Bellhouse’s daughter at high speed into Bellhouse’s hand yet he felt nothing. They had Elspeth and Paul Drayson (who subsequently married one another). It di s c ov e r ed a painless way to deliver medicines usually delivered by injec- was only when the inventors teamed up with the entrepreneurs that tions. the idea was turned into a business. Power J e c t, like many other success-
The two scientists only had a dim sense of their invention’s commer- ful high-technology companies, is built on the partnership between cial and medical potential. It was Bellhouse’s daughter , Elspe t h who saw science and entrepreneurs the potential and persuaded them to patent their invention. She also Third, the raw knowledge at the core of the business had to be put in s i s ted tha t the y team up with an entrep r eneur to develop the idea into into a form that could be protected but also replicated in the shape of a business, which is where Paul Drayson came in. a product. Bellhouse and Sarphie had created a generic technology: When Drayson arrived at Bellhouse’s laboratory he did not find a powder injection. Powderdject had to turn that into a product: some- hand-held device from Star Trek but a gas gun the size of a bazooka. thing that could be used day in day out by doctors.
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Surfing the Long Wave The six stages of entrepreneurship
● Four th, to make that possible the team had to mobilise resources Su c c e s s f ul knowl e d g e entrep re n e u r ship is a struct u r ed acti v ity, not beyond its control: it had to form collaborative partnerships. a flash of in d i v idual genius. Outsiders, advis e r s and interm e d i a ri e s Fifth, they had to act confidently in the face of great uncertainty. can play a crucial role in structuring this activity. ● Powd e r J e c t sta r ted as a very small compa n y facing many larger compe t i - Kn ow l e d g e entre p re n e u rship builds in six st a ges: cre ate, sense, tors. Se ve r al times the team rej e c ted offer s to buy the business. Drays o n pa c kag e, mobilise, act and exit. A business can succeed or fail at any had to recruit key staff from secure jobs in larger companies to join a stage. All stages can be affected by policy makers to increase the fledgling venture. This required a potent mixture of confidence and chances that entrepreneurial venture will succeed. fl e x i b i l ity, vision and pra g m atism: confi d e nce to punch above th e ● The basic unit of kn ow l e d g e entrep re n e u r ship is not the individ u a l co mp a ny’ s weight, and fle x i b i l i ty to qui ckl y cha n g e tacti cs when condi- but partn e r ships and teams tha t combine the differ ent skills needed tions changed. to take a venture through these stages. Not all knowledge-based businesses go through exactly this cycle. ● These teams are often put together through social and business PowderJect, like other science-based businesses, started with a tech- n e t wor ks th at are often animated by inte rm e d i a ries, inc l u d i n g nology and then found a market for it. Often businesses start the other i nv e stors such as venture capit a l i sts, colleagues who wor ke d wa y around: an entrep r eneur senses an opportu n i ty and finds the tec h- together for large companies or universities acting as hubs. nology to realise it. Knowledge entrepreneurship cannot be reduced to ● While entrepreneurs are more agile than larger companies it often a templa te, as the diversity of experiences in our case studies show. ta k es seve r al yea r s for a idea to come to frui tion. Pers i s ten ce counts E n tr e p re n e u rship is ch a o t ic. Events ra re ly turn out as planned. as much as agility. Business plans are frequently rewritten. Chance, luck and serendipity play an enormous role. Peter Molyneux, one of Britain’s most success- The six stages of entrepreneurship ful com pu t er games entrep re n e u r s, stumbled into the industry almost by chance after persuading Commodore, the computer group, to give Create him and his partner some of its smarte st machines. Jez San, th e Successful knowledge businesses are built on distinctive and valuable founder of Argonaut Softw a r e and ARC, which designs chips for gam e s know-how that has a potential to create a new service or to improve consoles, st a rted his career by spending two ye a rs in his bedro o m productivity, which competitors will find it hard to imitate. designing a comp u ter game called Starglider th at qu ite by cha nc e The impo rta n ce of di st i n ctive valuable knowl e d g e is most obvious in became an enormous hit. Edwin Moses became ch i e f e xecutive of science-based businesses such as CDT, PowderJect, Renovo and ARM, Oxford Assymetry, the biotechnology firm, as a removals firm was wh i ch wer e built on formal scientific knowl e d g e developed over seve ra l pa c king up his belonging to take him to a job in Chicago. Steve Bowb r ick years of non-commercial research. Yet this is only one kind of knowl- created one of the earliest successful British web design companies, edge that can be deployed in a knowledge business. Steve Bowbrick’s WebMedia, only to see it fail. Bowb r ick then spent the best part of a yea r successful e-mail business Another.com was based on a sound knowl- looking for a new venture. He tried and rej e c ted about five ideas before edge of the internet and an eye for how to market a product virally by finally settling on his new venture, Another.com. word of mouth. Jez San’s Argonaut was built on the tacit, informal and Experimentation, learning, failure and risk taking are vital to entre- untaught skills of co mp u t er games pro gra m m e rs. In cre ative busi- pre n e u r ship. It cannot be reduced to a manageable process. However our nesses, such as Aar dman animation, the knowl e d g e is embedded in the researc h shows that knowledge entrepreneurship as an activity shares creative processes and culture of the company. these fundamental characteristics: Of ten entrep re n e u r s do not crea te new ideas, know-h o w or skills: the y
ta k e ideas from one area and apply them to anothe r . Entrep re n e u r s are
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Surfing the Long Wave The six stages of entrepreneurship
inv e te r ate borrower s, often abducting an idea or an experie n ce from one create a business plan he learned a little more about what would area and applying it to another. The failure of many of the first wave and would not work. of internet businesses – the dot.coms – was in part due to their lack of ● Entrepreneurs often have a confident and committed view of the a re a l l y dist i nctive know- h ow. Often these companies we re simp ly world. They make up their minds rapidly because they have faith sl i g h t l y qui cker to understand how the inter net could be applied to busi- in their ability to make sense of the world. This confidence some- ness than larger incumbents. Once the incumbents got up to speed times comes from their youth – the likes of Jez San, the teenage many of the new entrants were squeezed out. entrepreneur at Argonaut – and sometimes from great experience – the likes of Robin Saxby, the seasoned ex Motorola executive who Sense played the role of elder statesman at ARM. ● Knowledge businesses do not necessarily have to start with distinctive E n tre p re n e u rs often fo ster inte l l i ge nce networ ks of fri e n d s , knowledge at the outset. Many knowledge based businesses start with colleagues and partners through which they can share ideas, learn a sense of the market opportu n i ty and then put toge t her the know-h o w w h at comp e t itors are doing and glean inform ation about new needed to exploit it. opportunities. Sensing opportunity is as much a social activity as En t r ep re n e u r s sense opportu n i ties tha t othe r s do not see. Entrep re n - an analytic and intellectual one. eu r ship is not about simpl y being qui ck enough to exploit a market tha t everyone can see: the goldrush had nothing to do with entrepreneur- Knowledge-based businesses combine these first two ingredients: ship. The most impressive entrepreneurs see opportunities that most distinctive capability or know-how and a sense of an opportunity that people overlook or doubt exist. others overlook.
E n tr e p re n e u rs th rive amid a consensus of doubt and sceptic i s m Sometimes the knowledge at the core of the business and the sense that holds other people back. They believe they are able to spot emerg- of opportunity can be found in a single person. David Ferguson, the ing trends from the fog of uncertainty that often surrounds new tech- founder of Renovo, is a good example. Renovo is developing commer- nologies and emerging markets. Armed with a minimum of informa- cial products to prevent patients scarring after surgery or accidents. tion they can work out more quickly and confidently what is going on Ferguson is both the chief scientist behind Renovo and the most artic- around them. ul a te exponent of the scale of its opportu n i ty in world health market s .
Timing is vital. Entrep re n e u r s can fail just as easily enter ing a market Fer g u s o n ’s sense of the scale of the commercial opportu n i ty for Ren o vo too early as enter ing too late. This was the fate of ma n y fir st- w a ve inter - comes directly from his intimate knowledge of surgery and scarring. net businesses: the y got to the market so qui ckl y tha t it was not matu r e However most often, as in the case of PowerderJect, the sense of enough to support their businesses. Many suffered from first mover op p o rtu n i ty and the disti n ctive know-h o w come from differ ent people di s a d va n t a g e rather than fir st mover advan t a g e. Slower moving compa - whose talents are combined in a partnership. nies following in their wake were able to learn from their mistakes. An economy will crea te entre p re n e u rial knowl e d g e-based businesses
This ability to sense opportunity is sometimes the result of a flash only where both knowledge and a sense of opportunity are in good o f insight. It is ra re ly the pro d u ct of formal market re s e a rch . su p p l y. Inve s tment in the knowl e d g e base, not just in education but also Entrepreneurs learn to sense opportunity in several ways: through research and development, science and culture, has to be
ma tched by crea ting open markets in which new entrants can cha l l e n g e ● En t rep re n e u r s inve s t in trial and error. Steve Bowb r ick, for examp l e , incumbents. dre w up plans for five different companies before he hit upon the
idea for Another.com with Joel Koerner. Through each attempt to
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Surfing the Long Wave The six stages of entrepreneurship
Packag e ers to create a successful business. Moving through this stage of the It is not enough for a venture to have identified an opportunity and e n tre p re n e u rial process inva ri a b ly invo lves expanding the team to posses the disti n ctive and valuable know-h o w to exploit it. To be success- dr aw in compl e m e n t a r y business skills. That can often provok e confli ct. ful that know-how has to be packaged in a form the company can exploit. Brian Bellhouse and David Sarphie invented a generic tech- Mobilise nology, powder injection; Paul Drayson and Elspeth Bellhouse turned A company cannot to make the transition from simply having an idea that into a product, a medical device. to become a business with a product, without mobilising additional The t rick is to come up with a technology, business model, brand or res o u r ces. Entrep re n e u r s excel at ral l ying money, people and res o u rc e s service that competitors will find it hard to imitate but which the to their cause. Know l e d ge entre p re n e u rs are ideas and purpose in co mp a ny it s e l f can rep l ic a te and so sp read to a large market. The se a r ch of assets and res o u r ces. Large companies are gen e ra l l y assets and p ro d u c t or service has to be simple for consumers to use; yet th e resources in search of ideas and purpose. kn ow l e d g e underlying must be complex enough to make it difficult for Entrepreneurs have to be good at mobilising three kinds of asset: competi tors to imitate. finance, people and partners. The best exa mple of w hy this packaging mat te rs is the case of Cambridge Display Technologies. CDT makes a new kind of screen for ● Finance computers, televisions and mobile telephones, based on a plastic that All entrepreneurial businesses need finance to grow. Capital markets can emit light, (Light Emitting Polymer or LEP.) CDT began life in 1989 and investors play a critical role in financing the risks that entrepre- with the chance discovery in a Cambridge physics laboratory, in work ne u r s take. The emergen ce of a new gen e r ation of en t rep re n e u r ial busi- in vol ving phys ic i s ts and che m i s ts, exploring the potential for polyme r s nesses in the UK in the past decade has been due in part to the emer- to act as semi-conductors. Jeremy Burroughs, a researcher, found that gence of a deeper and more sophisticated venture capital industry, polymers glowed when subject to electricity at low voltage. With his which is now investing more in start-ups and new technologies. In the superv isor, physics professor Dr Richard Friend, he founded CDT. The past two years many large companies, such as BT and Reuters, have potential for LEP technology is enormous. LEP screens are simpler and c re ated cor p orate venture funds to inv e st in new ideas inside and cheaper to produce than existing screens; the y do not need separate illu- outside their businesses. A clutch of business incubators has been set mination; they can be viewed from any angle; they are extremely flex- up, such as Gorilla Park, BrainSpark and IdeasHub. Government policy ible and environmentally friendly. has promoted the venture capital industry through regional venture Yet des pi te the promise of the te ch n o l o g y, for most of the 1990s CDT capital funds and venture capital trusts. struggled because it failed to turn a generic technology into a specific None of the entrepreneurs we inter viewed complained that it had pro d u c t with a market. CDT has recognised tha t alone it cannot deve l o p been difficult to raise finance. Most started their businesses with a the technology into a product; it needs to work with partners who can. mixture of their own savings, sweat equity and bank loans, and then
To make this tran s i tion from a basic tec hnology to a spe c i f ic pro d u ct , funded the business from their revenues. A few got funding from indi- the original inventor or founder entrepreneur has to be prepared to vidual angel inve s tors or formal gove r nment schemes, such as the Loan work with people who have applied know- h ow in manufact u ri n g , G u a ra n tee Scheme. Fi n a nce still remains an issue for many small distribution and marketing. This transition is not just a problem for co m panies, espe c i a l l y those tha t are too small to att rac t venture capita l science-based companies. In cultural and creative businesses, such as but too large to be financed from bank overdrafts. Raising finance c o mp u ter games and animation, the dist i nctive know- h ow of th e requ i r es spe c i f ic skills – in business planning, fin a n cial proj e c tions and cre a tors has to be combined with the clout of di s trib u t ors and publish-
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Surfing the Long Wave The six stages of entrepreneurship
negotiations with investors – which the originators of an idea or tech- comes from a sense of commitment and self-belief in the project. This nology often lack. is something that often only the founder entrepreneur can provide. Yet, as well as being committ ed, entrep re n e u r s have to be flexible and ● People open in the way that they think about developing their business. As Entrepreneurs have to be good at creating teams that mix different m a r ket conditions ch a n ge, new comp e t itors emerge and inv e stor senti- talents and ages. Often one problem that besets entrepreneurial busi- ment shifts, entrepreneurs have to be flexible enough to change tack. nesses is that they find it difficult to attract management talent from In te r net and E-co m m e r ce companies, for exam ple, such as NoHo Digita l l a r ger more established companies. One of the bigge st constra i n t s and Another.com have had to adapt and change their business models facing smaller companies is the difficulties they have in recruiting of wh e r e the y would make their money from as the business has deve l - managers ready to work in an entrepreneurial environment. oped. NoHo was set up to exploit the CD-rom market that quickly collapsed. It then did a lot of work for Microsoft only to have the plug ● Partnerships pulled on its main contract. It prospered in the late 1990s by becoming
Small companies often come up with innovations that are only legit- a web designer. imised when larger companies exploit them. Often smaller companies Frequently entrepreneurial businesses have to take opportunities, do not challenge large incumbents directly but find a profitable niche clients and inve s tors as the y present the m s e l ves. It is extrem e l y rar e for within an ecology of existing companies, supplying them with new an entrepreneurial business to develop according to the original plan ideas and services. Many of the most successful companies we exam i n e d of the founders. worked in alliance with large partners. ARM has grown with Nokia, its The group of entrepreneurs we studied have been through a huge main cus tomer for semi-conductors. PowderJect relies on its alliance amount of turmoil. Several of the companies changed hands, among w ith phar m a c e u t ical companies. Aa rdman was wor ked with large r them NoHo Digital, which was sold to WPP the advertising and market - distribut ors for its products. ing group; WIRE, the internet insurance specialist which was bought
To mobilise res o u r ces, entrep re n e u r ial teams have to combine at least to the Willis Insurance group; and Oxford Assymetry, the biotechnol- thr ee q ua l i ties. Fir st, the y have to be good storyte l l e r s, to communica te ogy comp a ny, which was sold to Evote c h. Eidos, the maker of th e the exci tement of the project. Second, they need to be able to explain computer game Tomb Raider starring Lara Croft which at its peak was to inves tors the financial detail of business plans. Third, they need to worth £12 a share, remains independent only after a series of failed be good negotiators and networke r s to form the right partn e r ships and merger talks and with its share price in May 2001 at £3 per share. A corporat e alliances. handful of the entrepreneurs went out of business altogether, among
them Lesley Keen a leading computer games entrepreneur in Scotland Act and Robert Norton and Toby Rowland of Click Mango. Others such as Entrepreneurs act confidently in the face of uncertainties that put off Bookham Tec hnologies and ARM enjoyed periods of as tounding growt h ot her people. This requ i r es a blend of c o n fi d e nce and fle x i b i l i ty, vis i o n fo l l owed by a collapse in their share price. At its peak Bookham and oppo rtunism. Technologies was worth £54 per share: that subsequently fell to close En t r ep re n e u r s have to have grea t confid e n ce in the idea behind the i r to £10 a share. Entrepreneurship requires strong nerves. business and its potential for growth. Especially when a company is small, the entrepreneur has to be able to communicate this vision to Exit employ ees, investors and partners alike. That confidence rarely comes Entrepreneurs need to know when to leave a business and pass it on to from ha ving a detailed strategy or a well-developed business plan. It a different management team. The entrepreneur who can spot and
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Surfing the Long Wave
in it i a l l y exploit an opportu n i ty is not necessaril y the best person to lead a company into a more mature phase of growth. Often investors and ve n t u r e capita l i s ts play a criti cal role at this sta g e of the entrep re n e u ri a l process, when the founder entrepreneur’s involvement can be detri- 3. Entrepreneurial networks mental to business development. Exit matters in another sense. An entrepreneurial company has to provide investors with an exit strategy to allow them to make a return on their investment. Either the company has to be sold or it has to be flo a ted on the stoc k market. The prosp e c t of being able to exit provid e s investor s with an incentive to invest.
Conclusions In a world of instant global communications, and expanding world
Successful entrepreneurial ventures are driven by ambitious, individ- trade and global markets, why have compact regions and cities such as ual ent repreneurs who are confident, visionary, committed and deter- Silicon Valley, Cambridge, Munich and Bangalore been at the heart of mined. innovation? Why do tightly-knit clusters matter so much in a world in
But individual entrepreneurs alone do not make a business. Indeed, wh i ch dista n ce appears to be waning as a constraint on economic acti v - of ten t he y hinder a business’s development if the y hang on to the rei n s ity? for too long. The idea of the lone hero, the maverick entrepreneur is a Networks and clusters that bring together companies in the same myth. A knowledge-based business will grow only by pulling together in d u s try, often linked to a universi ty or knowl e d g e base, play a vital rol e different talents and skills at each of the stages outlined above. in innovation in knowledge driven industries. This is not a new obser- This six stage analysis of the entrepreneurial process should also vation. The economic analysis of cl u s ter s is more than 100 yea r s old and make is clearer how policy can promote knowledge entrepreneurship. especially well-recognised by historians of the Industrial Revolution. Intelligent policy making can make each stage of the entrepreneurial Glasgow, for example, was at the forefront of trade and engineering in pr ocess easier by: opening up markets to crea te opportu n i ties for entre- the Victorian era, in large part due to a cluster of know-how around preneurs to launch new products and services; investing in spreading steam engines and ship building which had many of the characteris- e n tre p re n e u rial capability; making it easier for entre p re n e u rs to tics of latter-day clusters. In Medieval times guilds clustered together mobilise fi n a nce, people and part n e rs; cre ating networ ks to bri n g in particular streets and districts of cities. Jewellers are clustered in together people with ideas and know-how with venture capitalists and London’s Hatton Garden and the meat trades in Smithfield, to attract executive talent. customers to a common location. US electronics companies are busily One of the main conclusions of our work is tha t entrep re n e u r s thri v e investing in Dresden, in eastern Germany, to tap into a pool of skilled amid netw orks which can provide them with access to ideas, partners, labour left behind by the collapse of the communist micro-electronics talent, money and customers. It is to the role of networks that we now industry. turn. So clusters are not new. What is new is the central role they play in
knowledge-driven industries. Clusters drive innovation and entrepre- ne u r ship, which in turn helps to drive growt h. That is why cluster s and networks matter so much in the modern economy.
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Surfing the Long Wave Entrepreneurial networks
Our research shows that it is the interaction of two very different facture at lower costs. But Ford’s innovation built on many other inno- types of networks that drives innovation. First, tight networks and vations developed by companies in the Detroit cluster that failed. geo g ra ph i c cluster s, gather innovative companies toge t her in the same This process of intense experimentation, collaboration and compe- area in which they might feed from the same knowledge base. These tition requires close contact and constant communication. The more tight clus ters are facilitated by proximity to share ideas, staff and a uncertain the technology and the fuzzier the market opportunity, the common culture. mo re communica tion is needed. At an early sta g e of an industry’ s deve l -
Second, looser inte rn ational innovation networ ks also mat te r, opment ideas and technologies have not been standardised or format- wh e t her in science -based industries to link up res e a r che r s, or in creat i v e ted. The knowl e d g e developed by innovators cannot be writt en down in i n d u stries to get access to markets. Scienc e-based industries, for manuals. It is tacit, hard to interpret and often very localised. That is exa m ple, are driven by collaborative intern a tional res e a r ch prog ram m e s . why clusters are vital to the process of innovation: they enable the It is dif ficult to be at the cutting edge of scientific research without i n tense social inte ra ction and communic ation between innovators , taking part in these programmes. cu s tom e r s, suppliers and partn e r s tha t feeds innovation. There is ampl e
Mo s t of the successful businesses we looked at wer e invol ved in both evid e n ce tha t despi te the growt h of in te rn a tional communica tions and tight and loose network s. The tight local network gave them a solid base travel, these tight knit clusters have become more important to inno- to work from; the loose international networks allowed them to inter- vation. nationalise their products and the search for ideas. For example, ARM Even in industries such as biotechnology, in which innovation often is a Cambr id g e based compa n y but it sells most of its prod u c ts to global involves the transfer of knowledge from a university into a commer- mobile phone manufacturers such as Nokia. Aardman is at the core of cial setting, these transfers are more effective when the company in the Bris tol animation cluster but it sells much of its work to US adver- que s tion is close by on a science park. Ideas and tec hnologies tran s fe r red tising agencies and film studios. Lionhead is the most successful of a out of universities invariably need considerable development to turn clutch computer games companies based in Guildford, but it sells its them into products. That requires constant interchange between acad- products to the likes of Sony and Nintendo. emics and corporate technologists. Clusters enable know-how to flow out into industry, both thr ough mobile labour markets, in which ideas Tight networks: clusters and innovation mo ve with people changing jobs, and thr ough a shared milieu and insti -
In n o vation at the early sta g es of an industry’ s development faces a grea t tutions that help to “store” the know-how. deal of uncertainty. Companies are not sure which kind of technology Collaboration to share and jointly develop ideas is only one part of might work nor what kinds of products and services consumers might the innovation process. Innovation is also driven by comp e t it i o n . eventually buy. New ideas do not come ready made. They develop over Cl u s ter s thr ive on an atm o sp h e r e of in t ense local riva l r y, thr ough which quite long periods of trial and error, experimentation and testing, to competing companies can compare their performance and products. establish what kind of approach will work best. Often embryonic tech- nologies can be improved only by bringing together different disci- Clusters and entrepreneurship plines, sharing ideas and working out how competitors have managed Networks also help spawn entrepreneurs by making it easier for entre- to crea te a better product. In the early days of the car industry in the pre n e u r ial team-based businesses to bring toge t her the ingredients the y l ate ninet e e n th century, for exa mple, th e re we re more than 2,000 need for growth. In Silicon Valley, for example, when an entrepreneur co m panies in and around Detroi t making automobiles. Henry Ford was emerges with a promising idea they are quickly linked, usually by a just one among many innovators. Ford emerged as the leader of the v e n t u re capit a l i st, into a supporting network of a d vi s e rs, law ye rs , industr y thanks to his revolutionary approach to design and manu- accountants, talent and the corporate partners they need to build a
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Surfing the Long Wave Entrepreneurial networks
● growing business. It is this combination – the drive of the entrepre- New technology clusters ne u r ial team and the speed with which the network assembles support The scienc e-based cluster of n ew te chnology companies th at has for the business – tha t often deter mines whether a venture will succeed. emerged around Cambridge in the past two decades combines several
Netw orks help entrepreneurs in three primary ways: ingredients. The founding institution is the university, which provides the formal knowl e d g e base for many of the companies around the city, ● Netw orks help entrepreneurs to sense opportunities. The informa- su c h as ARM and CDT which have spun out of the universi ty. The univer-
tion sharing and job-hopping that go on within clusters help to sity attracts talent f rom all around the world, some of which eventu- spread knowledge about customers and emerging market oppor- ally ends up working in nearby new technology companies. The recent tunities, and act as a shared intelligence network for companies. a greements between Cambri d ge Un i v e rs ity, Mic ro s o ft and MIT will ● Net w ork s can provide companies with access to the compl e m e n t a r y underpin its international reputation. assets and res o u r ces the y need to build a business: people, thro u g h Land near the city has been made available for the construction of a shared talent pool and mobile labour market; finance, because sc i e n ce and innovation parks close to the city centre. With gov e rn m e n t
through referrals companies can get access to leads from venture funding the universi ty is crea ting an entrep re n e u r ship and innovati o n ca p it a l i s ts and business angels; partn e r s and suppliers, who provid e centre to help commercialise research more effectively. ancillary business ser vices to the industry. Cambridge provides the kind of housing and quality of life that ● Net w ork s provide a shared infras tru ct u re not just of buildings and seems attractive to highly-skilled well-paid scientists: semi-detached premises, such as a science park, but also a social and intellectual housing, with large ga rdens, in semi-ru ral settings within dri vi n g in f ras tru ct u re of places to meet and share ideas. Successful cluster s distance of work. The reliance on cars within the Cambridge cluster, a
sometimes depend on founding institutions – like a university or a reflection of the housing pattern, has created growing congestion. large company – to act as a hub. Sometimes they depend more on C a m b ri d ge is within easy rea c h of London by train and car and thre e a shared milieu or atmosphere that helps to draw people together: in te rn a tional airports (Sta n s ted, London City and London Heathr ow) are
bars, restaurants, galleries. rea s o n a b l y close, although local businesses are lobbying for more direc t flights from the US to f ly to Stansted. Different types of clusters The cluster has managed to spawn some large companies, among
All kno wl e d g e-based industries need cluster s and network s to innovate; them ARM, which grew out of Acorn computers. Not only has this but the y need qui te differ ent kinds of ne t w ork s to suit their needs. Ver y created role models of local success, but also a stock of expertise and different kinds of networks have emerged in science-based industries, financial capital in growing businesses. Amadeus, the venture capital in f orm a tion tech n o l o g y , inter net services and compu t er games. Cluster s fund run by Hermann Hauser, plays a central role in many Cambridge in each of these industries take different forms depending on the way businesses. Cambridge has a developing infrastructure of local busi- they combine a knowledge base, location, culture, finance and gover- nesses – law firms, accountants, consultants – to help growing busi- nance. nesses. The Cambrid g e Net w ork has been crea ted to bring toge t her entre- To illustrate this contra st, consider the diffe re nces between th e pre n e u r s, res e a r che r s and venture capita l i s ts to sti m u l a te deals, but also science-based clusters around Cambridge and Oxford universities and to provide a voi ce for the cluster over issues such as planning and deve l - the inf ormation technology cluster along the M4 corridor; the new opment. media cluster emerging in the east of London around Hoxton and Cambridge is in many respects a classic, science-based cluster. The Shoredi tch and the old media clusters that have sustained animation stren g t h of the universi ty’ s knowl e d g e base alone does not explain why and newspapers in London. so many new technology companies have been created in the area.
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London, for example, is home to a majority of biotechnology research bitter dispute almost all other newspapers followed suit. The Mirror in the UK. Yet London has not spa wned a biotec hnology cluster because Group moved its editorial offices from Holborn to Canary Wharf, also it lacks many of the ingredients – science parks, affordable semi- the new home of the Daily Telegraph; the Express and The Star moved d e t a ched housing, a sch o l a r ly at m o sp h e re – th at at tra ct scientific to Black fri a rs; the Independent from City Road to Docklands; th e e n tre p re n e u rs. The culture, qu a l ity of l i fe and at m o sp h e re of Financial Times from St Pauls to Southwark; the Daily Mail from Fleet Cambridge is as important in attracting science entrepreneurs as the Street to Kensington. The reorganisation of printing was even more availabili ty of offices, transport links and finance. dramatic: many titles divested of their print plants altogether and The science-based cluster around Cambridge is different in many arranged for their papers to be printed on contract in remote plants. respects from the information technology corridor along the M4 and As this old media cluster, based on old technology and trade union
M3 motor w ays, stre tching from Slough th rough Reading and power, was being dismantled and dispersed, a new media cluster was Ba s i n g s tok e, to Swindon and Bath. If the universi ty is the founding insti - taking shape in the East End based on new tec hnology and working prac - tution of the Cambrid g e cluster , multinational informa tion tech n o l o g y tices. companies such as Cisco, Microsoft, Oracle and IBM are the founding Cu r tain Road, in Hoxt on, east London, has a long a history of cu l t u ra l fathers of the Thames Valley cluster. This is very much a corporate entrepreneurship. It was the site of one of the world’s first modern, cl u s ter rather than a universi ty cluster . These multinational compa n i e s Elizabethan theatres – it draws its name from the curtain that fell on ar e att r ac ted by a pool of skilled, mobile labour; easy access to Heathr ow the st a ge – as playw rights and imp re s a rios cre ated a new way to ai r p o rt; ease of access to London, where many European compa n y head- communicate to large audiences. These days Hoxton’s run-down ware- quarters are located, and to large back-offices for banks, building soci- houses are home to one of the largest concentrations of new media, eties and service companies in towns such as Basingstoke. While the digital design and internet businesses in Europe. Thames Val l e y cluster has prom o t ed innovation, it is far less rad i cal and The ingredients that have created the Hoxton cluster are completely more applied than the innovations emerging from Cambridge. The d i ffe rent from the ingredients in Cambri d ge or along the Thames knowledge base in the Thames Valley is far more corporate and indus- Val l e y corrid o r. It was not planned or designed by a gove r nment agen cy. trial than scientific and academic. The area benefited from subsidies provided by the European Union due to the high levels of poverty. However there never was, and still is, no ● Media clusters plan to crea te a new media cluster in east London. Had the r e been such Like Ne w York, London is a media city in many respects. It is home to a plan it may well have turned people off. mu c h of the UK’s broa d c a s ting and advertising industries. Perhaps the There is no formal local knowledge base for the new media compa- most famous media cluster was the concentration of national news- nies in the area. West m i n s ter Uni v e rs i ty played a cove r t role in support- papers around Fleet Street, a relatively narrow and historic London ing the area because it owns sev e ral student residential blocks in street, that at one time hosted a string of print plants with newspaper Hox t on. However none of the nearby universi ties, such as the Guildhall o ffices above them. This conc e n tration of n ew sp a p e rs grew up to University or the University of East London played any role in provid- exploit shared information and gossip on which newspapers thrived. ing research or a supply of talent. It was held together also by the power of print trade unions which Th e r e are no big media and advertising companies nearby to provid e stopped newspaper publishers exploiting new technology. demand. The Hoxton cluster has benefited from the proximity of key Ho wever tha t cluster sta r ted to unravel in the early 1980s when News London-based custo m e rs, among them banks and fi n a ncial servic e International moved its titles from Fleet Street to Wapping in the east companies, which provided early demand for web design and internet end, dismissed many printers and introduced new technology. After a services. However no large companies have a base in the area. Indeed
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Knowledge Entrepreneurs Entrepreneurial networks
young new media companies located in Hoxton precisely because the around them came design companies such as Flux, software start-ups tra d itional home for London media, Soho, is so ov e r- p riced and su c h as Anvil and communica tions companies. All these companies live conges ted. and work cheek by jowl in the back streets of an area which has some-
Ven t u r e capita l i s ts have played only a marginal role in the growt h of thing of the feel of New York’s Tribeca, an old industrial district, with the Hoxton cluster. As with Silicon Alley in New York, the venture capi- large warehouses and markets, close to a major financial district. talists arrived only after the cluster got going: they did not kick-start As these developments were taking place in Hoxton, less than a mile it. Hoxto n ’s new media companies have not formed a formal associati o n awa y to the south-e a s t Vibe Prod u c tions, a pop promotions compa n y had akin to the Digital Media Association of New York, the non-pro fit become the managing agents of the eleven acre site that was the old orga n i s a tion tha t was one of the founding insti tutions of Si l i con Alley. Truman’s Brewery on Brick Lane. The Brewery, surrounded by cheap
So how did Hoxton come to acquire a growing cluster without any of curry houses, had passed through the hands of two property develop- the classic ingredients which are thought to be required? ers before one approached Vibe with the proposal to manage the site. The Hoxton cluster was no accident but nor was its growth uncoor- Small companies – mainly music, fashion and design – st a rted to dinated or unplanned. The turning point was a powerful combination in h a b i t the old office flo o rs of the brewer y. When the inter net took off, of ar t and the inter net. The large light warehouses around Curtain Roa d the brewery became a natural home for a wave of dot.com companies. became the favou r ed work spaces for a new gen e r ation of young Briti s h By the summer of the year 2000 there were 300 companies on the site, artists, lured by cheap rents and Hoxton’s reputation for being unfash- ma n y of them in e-co m m e r ce. In the autumn of 2000, Gorilla Park, one ionable. Gilbert and George, for many the doyennes of Britart, live and of the biggest business incubators in Europe, opened a 30,000 sq foot work in a Hugenot house just off ne a r b y Brick Lane, a trad i tional immi- f a c i l ity just off B rick Lane, within a sto n e’s th row of the Tru m a n grant district and home to a large Bangladeshi community. Arti s ts such Brewery. Meanwhile more new media and design companies, among as Trac ey Ermin and Damian Hirst had studios in the area and displ a yed them IDEO and Moreover, were developing their base in Clerkenwell a their work th e re. Much of the work of this new ge n e ration was mile west of Hoxton. This Clerkenwell–Hoxton–Brick Lane triangle is d i sp l ayed at the White chapel Art Gallery which in the 1980s was the home of Lo n d o n ’s most dynamic and thri v ing new media and inter - di re c ted by Nicholas Serota, who went on to become direc tor of The Tate. net cluster: it is the Silicon Alley of London. Charles Saati chi, Brita i n ’s leading modern art collector, announced plans As this agglomeration of small internet-related companies took off, in May 2001 to open a gallery in the area. The borough of Hackney (of so did demand for ancilliary services. Hoxton has become one of the which Hoxton is a part) has the largest population of artists per head liveliest areas in London, with a string of new bars, restaurants, clubs, of population in Britain. cafes and sandwich shops. The close connections between fashion, art
The development of Britart coincided with the emergence of the and the internet are in evidence on Hoxton Square, home to the new internet as a potential mass medium in the second half of the 1990s. Lux art cinema, and London’s tren d i e s t art gal l e r y White Cube2. Hoxto n Hoxton was a natural place for young internet companies to look for used to be a place people drove through on their way out of the city; space, especially as some of them were founded by graduates from art now it is a place many people drive to for a night out. and design colleges. Deepend, one of the first companies to come to W hy did this network of small companies and re l ated act i vit i e s Hox t on, has become one of the larges t independent web design compa - emerge in this unfashionable and overlooked triangle of east London? nies in London with offices in Rome, Syndey, New York and Toronto. It The main attraction of Hoxton was cheap space in warehouses of the was founded by graduates from the Royal College of Art. kind that young entrepreneurs, some of them from art and design The area has become home to some of the most fashionable web sc hools, wanted to work in. The established centres, like Soho, populated design companies in London: Digit, Late ral, To m ato. And clustere d by large media companies, were far too expensive. These young media
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Surfing the Long Wave Entrepreneurial networks
entrepreneurs liked Hoxton for being unfashionable because it under- talent and know-how. To achieve this, clusters need to reinvest in their scored their sense that they were not part of the mainstream media kn ow l e d g e base often by bringing in new ideas from outside. Successful world. They wanted to identify with their peers in fashion, music and c l u ste rs have to enc o u ra ge new waves of e n tre p re n e u rship. New art who in the mid-1990s helped to create a sense of excitement about en t rants can brea the life into established cluster s by challenging incu m - Britain ’s cultural industries. There is no founding institution but art, bents and opening up new path w ays for local companies to grow. artists, galleries and studios played a critical role in giving the area an Silicon Valley has pulled off this trick, moving from hardware to soft- air of creativ ity and cultural innovation. ware and services.
When clusters succeed and fail Loose international networks
To succeed a cluster needs momentum and mass to get going. But as it Su c c e s s f ul knowl e d g e-based businesses invari a b l y have their feet firm l y develops it also needs a diversity of ideas and people to provide new rooted in a local cluster that provides them with access to their knowl- sources of growth. e d ge base. Howev e r, just as imp ortant, entre p re n e u rial know l e d ge-
I n it i a l ly a cluster is like ly to grow faster around a clear base of based businesses are usually highly intern a tional in their outlook from k n ow l e d ge and a dist i nct market opport u n ity. Silicon Va l l ey, for a very early stage. There is no single route to internationalisation. example, got its name from companies working in the computer hard- Animation companies, for example, are largely sustained by a domes- ware indus try, particularly in semi-conductors and disk drives. This ti c broa d c a s ting and advertising market. Though intern a tional pro j e ct s focus helped the cluster to grow rapidly, allowing companies to share are common in animation they are mainly seen as akin to “exports”. knowledge and build up expertise in a common field. Critical mass Co mp u t er games softw a r e, on the other hand, are an intern a tional busi- mat te r s to any cluster: if too few companies are invol ved the cluster will ness from the outset: the platforms and consoles are made by compa- not take off because it will not generate the level of interaction and nies in Japan and the US; the main games publishers are based in Franc e creativ ity required. and the US. A British games company cannot succeed without having
C l u s te rs focused on a single te ch n o l o g y, market or pro d u ct may an intern a tional outlook from day one. The same goes for many science - grow rapidly at the outset but in the long run the very focus of these based industries such as biotec hnology and communica tions. Successful clusters is likely to become a source of vulnerability. A cluster can knowledge-based businesses often have to combine strong local roots, become conges ted, the victim of its own success, as prop e r ty prices and which can make them introspective, with an avowedly international wa g es are driven up by rapid influx of co m panies. A cluster can become outlook and a dete rm i n ation to match the best compe t i tors around the in w a r d looking if co m panies within it trade with one another too much world. and do not look outside for new ideas. This is the fate that befell textile Access to intern a tional network s thr ough good communica tions but m a ch i n e ry in Lanc a s h i re and steam engines and shipbuilding in also easy international travel matter to knowledge-based business for Glasgo w. A cluster with a base in a single industry or branch of tech- several reasons: nology is vulnerable to shifts in demand that leave its main product outmoded. People.“Biotechnology is a global business even at the start-up stage”, An y cluster is likel y to face a decline in demand or rising compe t it i o n c o m m e n ted a venture capit a l i st, in part because th e re is a global in one of its industries. The key is how cluster s res pond. Successful clus- labour market for research and managerial talent. Even a small indus- ter s res pond to compe t i tion with a fur ther round of in n o vation to crea te try such as animation, for example, thrives on a network of interna- ne w sources of co mp e t i tive advan t a g e. Successful cluster s breed succes- tional festivals, screenings and joint-venture projects. so r industries from within, based on a new gen e r ation of en t rep re n e u rs ,
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Surfing the Long Wave Entrepreneurial networks
Research and ideas.In industries such as pharmaceuticals research is In the next two chapters we examine how new industries emerge i nva ri a b ly conducted across collaborative inte rn ational networ ks . from this intera c tion of ne t w ork s and entrep re n e u r ship by exam i n i n g Successful companies must have access to these networks to stay at the the cases of computer games and animation. leading edge of their field. In creative industries such as web design, co m panies such as Digit compa r e the m s e l ves to and learn from compa - nies based in the US and Japan.
C u sto m e rs .Small innovative companies often at tra ct inte rn at i o n a l cu s tom e r s. In compu t er games for exam ple, Jez San at Argonaut got his big break when Nintendo flew him to Japan to sign a deal to develop games. At ARM, Robin Saxby told his team of twelve engineers at the outset that their only hope was to think of themselves as a global company from day one, dealing with global customers such as Nokia, Ericsson and Motorola.
Pa rt n e rs .Of ten the compl e m e n t a r y res o u r ces and expertise tha t compa - nies need to develop their pro d u cts are to be found elsew h e re . PowderJect, for example, drew in manufacturing expertise in the US.
CDT is developing polymer screens through an alliance with Epson of Japan. Oxford Asymmetry now finds itself part of a larger German biotech group.
Investors. To be credible entrepreneurial high-tech businesses have to dr aw on ove r seas inve s tors, partic u l a r l y from the US. Moreov e r , the inter - net business intelligence service, splits its operations equally between San Francisco and London. It has mainly US investors to give it credi- bi l i ty with US custom e r s. Bookham Tec hnology and ARM are quo t ed on the US high-tech Nasdaq market for similar reasons.
The grow th of the innovat i o n -d riven know l e d ge economy has e n h a n ced the imp ort a nce of b o th tight-knit local cluste rs, which depend on proximity and the role of looser international networks, which are increasingly coordinated by rapid communications and effi- cient international travel. Successful knowledge-based businesses are in vari a b l y both firm l y roo t ed in a local cluster and part of a wider inter - national network, which provide them with access to different kinds of ideas, customers, partners and know-how.
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Computer games
Figure 1.
Platform Global Installed base Launch Date Sales Peak (end 1999) (Japan) (Anticipated) 4. Entrepreneurs and networks in Sony Playstation 70 million 1994 1998/9 action: computer games N64 22 million 1996 1999 Sega Dreamcast 2.7 million 1998 2000/1
Playstation 2 n/a 2000 n/a Microsoft XBOX n/a 2000 n/a
Nintendo Dolphin n/a 2001 n/a
Background Source: Durlacher Research
Britain has a world-leading position in one of the fastest growing new media sectors in the world – compu t er games – largel y tha n k s to a grou p The games industry has been prom o t ed by waves of ne w tech n o l o g i e s . o f young seat -o f - th e-pants entre p re n e u rs who emerged in the last Games sta r ted with very basic compu te r s such as the Spectrum and the decade. Co m m o d o re. They developed on more power ful personal compu te r s and This group of entrepreneurs – some of whom are profiled in this a re now large ly played on sophist ic ated games consoles th at also rep o rt – saw the opportu n i ty emerging in the games industry and the n provide access to the internet via the television. Games downloaded de veloped the know-h o w and built the orga n i s a tions to take tha t oppor- through a set-top box are one of the most popular features of digital tu n i ty. Brita i n ’s stren g t h in one of the worl d ’s fastes t growing industrie s television. A combination of digital television and high-bandwidth has little or nothing to do with government policy, venture capitalists, communications will allow more people to play more sophisticated a formal universi ty knowl e d g e base nor large domesti c businesses. It has games against one another online. Games will also be delivered to new been crea ted entirely by young knowledge entrepreneurs. ge n e rations of h i g h - b a n d w i d th mobile telephone services to be By the late 1990s more than 150 British companies were developing la u n ched in the next few yea r s. In a rep o rt issued in May 2001, the infor- s o ft w a re for comp u ter games, according to official fi g u res. Brit a i n ma tion consultancy Data m o n i tor pred i cted tha t the number of pe o p l e accounts for 71 per cent of the European inve s tment in the pro d u ct i o n in Europe and the US playing games online and through digital tele- of computer and video games. British-developed games account for vision would rise from 13 million in 2001 to more than 111 million in about 12 per cent of the US market and 25 per cent in Europe. The UK 2005, with revenues from tha t bran ch of the industry rising from $174 ranks second only to Japan in authoring computer games software. A million to $5.6 billion. The opportunity for games developers who can single creation of the UK industry – Lara Croft, the heroine of Tomb adapt to these emerging technologies is huge.
Raider – earned more in overseas earnings for the UK than the Spice Britain has developed a world-leading position in one of the fastest Girls, who in turn earned more in their peak year than some manu- growing new media industries in the world without any of the appar- facturing industries. ent pre- re qu i s ites for grow th in know l e d ge-based industries being
The UK market for computer games is worth about £1 billion. That present. Yet, despite, or perhaps because of that, Britain has developed co mp a r es with £650 million spent last year in British cinemas. The worl d a world-class industry, at least in this stage of the industry’s develop- market into which British games sell, via platforms such as Sony’s ment.
Playstation 2, is worth more than £12 billion or more.
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Surfing the Long Wave Computer games
The Br itish industry has become a success because youngsters devel- software shop. Lesley Keen, of Inner Workings, one of the few oped the knowledge they needed to programme games by using crude women in the industry, in part failed because she felt so at odds with ea r l y com pu te r s, such as the Spectrum and Commodre. Gaming became the adolescent male culture which still dominates the industry. ● a communi ty in which ideas and tips were rapidly shared, spreading All the entrep re n e u r s sensed the emerging opportu n i ty of co mp u te r knowledge. Games magazines helped to create that community, as did games thanks to their distinctive knowledge, which in turn came coding competitions, which helped to develop their skills. Many of the from being close to innovative consumers. They had the self-confi- most successful British gamers subscribed to Computer Video and Games, de n ce to artic u l a te tha t opportu n i ty to other people. Jez San did thi s a magazine which printed pages of code that readers could type into by showing Nintendo executives a demo of a 3-D game for it s their machines. This was a great device for people to teach themselves Gameboy hand-held console. Ian Stewart sensed where the market to prog ramme: if something went wrong the natural inclination was was heading by understanding how kids used compu te r s in his shop. to try and fix it. Games developed a do- it - yo u rs e l f c u l t u re which ● Op p o rtu n i ty is being crea ted in the games industry by waves of ne w provided the seed bed for full-blown entrepreneurship. technology for authoring games and new platforms to play them
The computer games industry has a distinctive knowledge base but on. Sensing opportunity is not a one-off event, but a continual it is largely informal and tacit. It is held in the heads and hands of process in an industry driven by change. As a result timing is vital: largely self-taught young people. The people who write games are also Lesley Keen’s company Inner Workings failed in part because it their most avid consumers. Computer games developers are part of an j u mped on the wrong te ch n o l o g ical boat: multimedia edutain- in t rove r ted and gee k y , yet crea tive, community, which combines collab- ment for CD-roms. oration and competition, creativity and technical expertise. ● The entrepreneurs were confident and visionary but also deeply
Several things stand out about the mainly young entrepreneurs, opportunistic and pragmatic. Capitalising on chance played a crit- pro f iled below, who have propelled Britain into world leadership in thi s ical role in several of their stories. radiply growing industry: ● They were all adept at adapting to change. Chris van der Kuyl has
a long-term vision for his company VIS Interactive but admits that ● These entrepreneurs were mainly young, often fresh out of univer- he can plan at most two years ahead. Having invested in multime- si ty, in the case of Pet er Molyneux of Bu l l f rog and Lionhead Stu d i o s dia van der Kuyl had to buy back his compa n y from inve s tors to take
and Chris van der Kuyl of VIS Intera c tive. Jez San at Argonaut wrot e it into games. Ian Stew a rt went th rough a similar upheaval at his first game while still at school. They rarely had conventional Gremlin. careers. ● Mo s t leapt from self-fin a n cing their business to drawing in venture ● Their motivation for going into business was partly negative, to capital or even taking their company private. As a result many avoid working for a large corp o ration and partl y a desire to do some- missed out intermediate stages of funding – largely because such thing creative with computers. Although many wanted to “have a finance is so hard to raise – that could have built the business over
hit” few went into business as a way to make money. a longer period. In the case of Gr emlin and Inner Workings, the lack ● The computer games industry has been driven by a do-it-yourself of this interm e d i a te fin a n ce meant the y wer e under-ca p i talised and cu l t u r e, which has built up a strong shared but informal knowl e d g e had to grow too fast from too small a base. ● base. Access to this community was vital to successful entrepre- The successful entrepreneurs recognised that they had to build a ne u r ship in the industry. Ian Stewa r t, who is not a games deve l o p e r team of people around them with complementary skills. The busi- and is a generation older than most of the other entrepreneurs in nesses that were run as a one-man show generally failed.
the industry, got access to the community through his Sheffield
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Surfing the Long Wave Computer games
Figure 2. History of games hardware bedroom.” Starglider sold several hundred thousand copies, of which 1976 –80 The first consoles, led by the Atari VCS 2600, create a market for San made about £2 a copy. “Which for a guy with no expenses, in his games. bedroom, was … plenty of money.”
1980 – 1989 The age of programmable home computers, particularly important With the proceeds he got himself an office and hired some other in the UK. Machines include Spectrum, Acorns, Commodores etc. employees. They did a lot of R & D: “We tried to do things that were ‘cooler’ than everyone else technically, even if perhaps not creatively 1989 – 1993 The market consolidates around two consoles from Sega and Nintendo. PCs begin to make inroads into the home. at the time.” 1994-5 The market for consoles remains flat or declines as a new generation This investment in knowledge creation led to a breakthrough in the
of machines are anticipated from Sega, Nintendo and new entrant – e a r ly 1990s. The Nintendo Gameboy console was already a success
Sony. when San and his colleagues reverse engineered it to play a 3-D game. 1996 – present Three new products – the Sony Playstation, Nintendo 64 and the Sega San approached someone from Nintendo at a trade show: “I thrust the Saturn – cause market to expand. More than 5 million UK house- Gameboy in his face and said, ‘look what we can do’. It was something holds now have a PC, across Europe as a whole, PC is the dominant they’d never seen before: 3-D graphics on a Gameboy. No one dreamed games platform. it was possible.” 1999 – 2002 Release of a revised version of the Sony Playstation and the Sega Nintendo flew San to Japan and hired his company, Argonaut to
Dreamcast. Concern that “platform wars” could stifle development de velop thr ee games in a multi-million dollar deal. Only two games wer e in some quarters. It addition to the “big three” of Sega, Sony and released, but one of them, Sta r fox, sold 4 million copies to become one Nintendo, Microsoft plans to enter the fray with its console code- of the best-selling games ever. It made Argonaut “a fortune” according named X Box. This makes it likely that no one box will dominate the market as the Sony Playstation did in the late 1990s and will increase to San. The company grew from fifteen to 100 people. development costs significantly. D u ring the collaboration with Nintendo, San and oth e rs fro m Argonaut suggested to Nintendo that they design some hardware that
would improve their machine. Nintendo took a gamble and financed Jez San, Argonaut Software, London a joint-venture compa n y – which res u l t ed in the Super FX chip, the basis Jez San, in common with other compu t er games entrep re n e u r s, got into for 3-D games machines. More than 10 million chips have been sold. computers early. His father worked in import-export, and bought him Argonaut subsequ e n t ly spun out its hard w a re arm into a separate a home computer in the US before they were available here. He was co mp a n y, ARC, which along with Argonaut subseque n t l y flo a ted on the twelve years old. stock market.
“I found something I wanted to do, I was the nerdy tee n a g e compu te r - Argonaut started by only making games for Nintendo, “which made hacker type”. He became a “gamer”, and although he passed the requi- us a bit under their thu m b ” . The end of the exclusive rel a tionship with si te number of O levels, by the time it got to A levels, he was more inter - Nintendo and the need to develop games for all platforms meant that, es ted in, “compu te r s, prog ramming and sta ying up late to play games.” in 199 7 , Argonaut ceased to rel y just on its own funds for orga n i c growt h “ So I didn’t go to university, which was probably the best thing for and instead it sought venture capital to develop the business. me,” he says, “although later in life, I thought it might have been fun. The inve s tors included Japanese publishers, Koei, New Media Inve s tors
But then I probably wouldn’t have had the same opportunities.” and Apax Partners in London. In March 2000 Argonaut raised £18 To a young man, with surplus creative energy, the nascent games million in a flo t a tion. Its revenues in the year to October 2000 wer e £4.4 in d u s try was a godsend. His fir st game, Skyline Att a c k, didn’t make any million and it made a pre-tax loss of £636,000. San remarked: “Having money . His second, Starglider took “two years of my life at home in my demanding fin a n cial insti tutions is good. It made us more matu r e. They
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demanded rep o rts, the y demanded board meetings – all tha t stu f f ma d e Molyneux is dyslexic. He found school difficult and was regarded as us grow up.” stupid. “I can remember being very frus trated as a child not having any Argonaut ’s strategy to develop games for many platforms has born cre a tive outlets. Suddenly these things called compu te r s came along and fruit. The first “Croc” game sold more than 1 million copies and its it was like this God-given machine for my skills.” su c c e s s o r Croc2 was also a success. Income from royalties was up 60 per His fir st job brought him into contact with an entrep r eneur and rol e cent to £1.6 million in 2000 while income from advances for future model, Sean Posten, who built the country’s biggest mail-order sports games was £28 million. Argonaut’s fin a n cial position had stren g th e n e d eq uipment business. Molyneux, fresh from universi ty was sent to work its hand with publishers: “Being we l l - fi n a nced helps a gre at deal. for Posten by the local dole office, to reprogramme the company’s tele- Normally games developers will go to a publisher with a prototype or sales systems. “The experience of watching this bloke with his enthu- concept, so the publisher is taking a big risk at that point, so the deal siasm and being trusted to set all these things up was incredible. I’ve is n ’t going to be very good. But if you can afford to develop more of the used that experience time and time again.” game and show them something that is nearly finished, you’ll get a Through contacts he had made working with Posten, Molyneux got much better deal.” together with a friend, Les Edgar, to set up Taurus Acquisition to make San recognised early on that Argonaut, “was a beast that needed database software. The company was funded by credit cards. taming”, and that he couldn’t run the whole thing himself. However, There is more than an element of luck in the Peter Molyneux story. he argues that the inherent creativity and unpredictability of games “One day, out of the blue, we wer e rung up by Commodore – this global development means it is not amenable to standard management tech- electronics company – who said ‘We’d really like your product on our niques: “All you can predict about games its that they will be late. This m a chine, can you come and see us about how we can do th at ? ’ ” m a kes planning qu ite hard and you have to operate a portfo l i o Mo l yneux and Edgar went along. Commodore was prep a r ing to launch ap p ro a c h. Unl i k e other softw a r e, its always cutting edge, its always R&D the powe rful Amiga. As the meeting ended Commodore agreed to – it’s not structured. If you’re selling an accounts package, you want it send five top - ra n g e Amigas to Molyn e u x ’ s office. It was at tha t point tha t to do what eve r y accounts packag e has done before – your feat u r e is 100 it dawned on him that Commodore had called up the wrong Taurus. per cent compatibility – our feature is to do what’s no one’s expected “They had phoned us instead of ‘Torus,’ a company that did network or has seen before.” cards.”
Molyneux and Edgar kept silent and got their five machines When Peter Molyneux, Lionhead Studios, Guildford, Surrey eve n t u a l l y the y showed Commodore a demonstration of the game the y Lionhead Studios, one of the best-known games developers in the UK, had developed Commodore executives were still keen. Through this occupies unre m a r kable offices in the Surrey Business Park near fortuitous step Molyneux moved into the games industry. Guildfor d. The door handles give the game away: they are in the shape of a Pac Man. Peter Molyneux, the founder and managing director, Bullfrog shares an open plan office with other developers. The atmosphere is E d gar and Molyneux founded Bullfrog Pro d u ctions Ltd to dev e l o p informal and family-like. In one corner young boys test games for free. games. The fir st – Populous – went on to sell 4 million copies. Pop u l o u s Kids have come from as far afield as Germa n y to tes t Molyn e u x ’ s gam e s . was a new type of co mp u t er game – a strategy game in which the player
Molyneux always wanted to have his own business. Even as a child, takes the role of a deity ruling over minions. This kind of game later he “had a passion for it.” He formed his first business at school: arrang- became known generically as a ‘god-sim’ game and spawned hundreds ing for other kids to cut people’s lawns. From an early age Molyneux was of im it a tors. Populous is one of the ten most successful compu t er gam e s a game player: computers changed his life. of all time.
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Surfing the Long Wave Computer games
“Life gets a lot easier when you’ve had a big hit. I wasn’t some great quickly realised he wasn’t cut out to be a corporate executive: “There gu r u sitting the r e thinking, ‘what’s gonna sell thr ee and a half mi l l i o n were an awful lot of board meetings. It is incredibly boring, very, very copies?’ I was some pizza-ea ting, coke guzzling geek who said, um, let’s tedious and didn’t suit my personality at all.” do a game about this. That was as much insight as I had into it.” Molyneux also knew he could not spend the rest of his life running Molyneux explains his success by the blend of skills he brings to Bullfrog: he no longer enjoyed running the company. So Molyneux games. He says he is a compe t ent prog rammer and though he is an atro- decided to make his exit and leave. cious artist he can visualise what a game should look like. Molyneux believes his main skill is being able to convey things very clearly to Lionhead Studios people. “Sitting down with someone and saying, this is how the game It seemed obvious to Molyneux that his next move would be to start should be, this is how we should approa c h it. It’s the clarity of the vis i o n another company. “Even having an extended weekend is like death to that I give to people. It’s more of a directorial skill.” me. I start panicking and thinking ‘what am I going to do?’ If I’m not “Aft er the success of Populous we could have taken that money and part of that process of creation, I feel terrible.” Computer games have cashed in the r e, but instead we rea l l y felt the r e was going to be a fut u r e been Molyneux’s way to defuse that panic. in computer games.” Molyneux went onto do three other games for The idea behind Lionhead was to re-create Bullfrog when it was a Bullfrog – Powermonger, Populous 2 and Syndicate. Even at this stage highly creative, twenty person company. “It was so much fun then and in the early 1990s, with a major hit under their belts, Bullfrog only the people there were so creative, it was just a wonderful period of my employ ed about ten people. By the time Magic Carpet was released in life. In terms of creativity and the atmosphere Lionhead has surpassed 1994, the company employed about 30 people. It had produced five anything that Bullfrog was before by a factor of ten.” consecutive number-one hits, a record unique in the industry and was Molyneux’s first game with Lionhead is Black & White, which aims starting to attract offers to buy the business from large companies, to take game playing onto another level of interactive sophistication. which the founders turned down. When Theme Park, which allows Mo s t compu t er games are still emotionally prim i tive, based on skills of pl a yer s to plan and develop their own theme park, was released and sold speed and tactics. Film and television drama on the other hand can be mo re than 3 million copies, Bullfrog ’ s val u a tion shot thr ough the roo f . em o t i o n a l l y engaging while not allowing for much intera c tion. “Games Molyneux and Edgar sold their company for $40 million of shares in ha ve the capacity to allow you to supply emotions to cha ra c ter s in a very
Electronic Arts, the US publisher. By the time the deal was completed real way, in a way a movie will never be able to do. You will be able to and Edgar and Molyneux had cashed in their chips the y wer e worth $60 interact with a piece of entertainment and, as a result of your inter- million. action, that piece of entertainment changes. There are some technical
“Financiall y, it was wonderful. I had a ton of money in the bank. I mountains to climb before we can say, we have cha ra c ter s in our gam e s was ha ving lunches at Goldman Sachs. It was a very big social change who can display emotions and react to your emotions. But we’ll get for both Les and me. We both bought fast cars and we both bought big there.” Black & White was released in 2001. houses. However Bullfrog had always been my emotional crutch. EA w a n ted to expand Bullfrog huge ly. Over eighteen months Bullfro g Lesley Keen, Inner Workings, Glasgow went fr om 35-40 people to just under 100. I went from somebody who Le s l e y Keen was an unusual person to be running a compa n y tha t deve l - did most of the design on the games and an awful lot of the program- oped computer games. Not only is a she a woman, rare enough in this ming to someone who was managing a hundred people.” industry, but she came to games late after a career spanning several He admits that for a time he had “stupidly thought” that he wanted aspects of what she terms, “interactive home entertainment.” to cha n g e EA itself, the larges t games publisher in the world. Molyn e u x
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When we first interviewed Keen in autumn 1998, she was running By 1996, Keen knew that the company had to start making original Inner W orkings – a Glasgow-based company employing some 70-odd material rather than repurposing existing material. She took Inner sta f f, specialising in chi l d re n ’s games. It had been trading since the early Workings into games. Although she felt she had the money to finance
1990s. In summer 1999 the company was wound up. Keen’s story exem- the tran s i tion, the real difficu l t y was the “qui te differ ent life forms you plifies the fragility of the UK computer games market. meet in the games industry.” The shift came too late for Inner Workings, which also missed out on
Backgr ound the surge of internet stocks in the late 1990s. “We ran out of money” Ke e n’s background was in animation, but unlike most tra d it i o n a l is all that Keen will say in elaboration of what happened to Inner an i m a tors she has been invol ved with compu t er grap h i cs since the mid- Workings.
1970s. At a multimedia show in Olympia in London she met someone A variety of factors played a role in Inner Workings demise. The demons trating an interactive CD. A consortium of people, including co mp a n y suffer ed from mis-timing. It sensed an opportu n i ty for gam e s Phillips, approached her to do a project about Ancient Egypt. but it was too early and too poor to take it: “What we predicted would
Keen took the opportu n i ty to get into intera c tive media and fou n d e d happen to the Playst a tion and what we wer e basing our strategy on, tha t Inner Workings. “At the beginning it was me and a couple of co l l e a g u e s is, that the pr ice would drop drastically making it viable for children, in my a tt i c, with a small amount of seed capital from Scottish Enter p ri s e has happened. But it has happened too late for us.”
(£25,000 to buy machines), working on the fir st proj e c t for Philips. That Keen found it difficult to assemble the manage rial support she was 1992.” needed to make the company fly. The gap between innovative new The product never came to market because Inner Workings, which companies, exploiting new technologies and potential investors also was doing the graphics, could not work with the programmers who hurt. In the early days when she was pitching to investors Keen had to wer e part of the Philips consortium. Keen believed tha t Inner Work i n g s explain what multimedia was and why the r e was a fut u r e for compu te r needed to combine all the creative disciplines – programming, sound games: “A lot of things I had to explain are common knowledge now, and gr a p h ics – under one roof. “We couldn’t see how our cre at i v e which makes me wonder, are you wise to be a pioneer?” vision could materialise unless we were controlling it.” Inner Workings st a rted life underc a p italised and in many way s , The next venture was a four-title commission to make CD-roms for remained so despi te its listing on AIM. “We went to the market too early,
Oxford University Press (OUP), as a result of which OUP made a small seduced by the notion tha t we could bypass the venture capital loop and investment in Inner Workings. The idea was to help OUP move into keep hold of equity.” At the end, she says Inner Workings would have multimedia by putting some of its children’s books on to CD. By 1995, needed 18 months or two years to turn the company around: “But we the market for “edutainment” was looking qui te exci ting. But suddenly couldn’t get the lifeline.” at the s ta r t of 1996 it went pear-shaped: the hype about crea ting multi- By the time Inner Workings’ shares were suspended it had six games media versions of books burst. titles in development, about 60 programme developers, it was spend-
It was a theme th at would reoccur in Inner Workings’ life: th e ing close to £1 million a year on games development and yet it had litt l e co mp a ny had backed the wrong tec hnology and needed to cha n g e tack it could show the City, at least in terms of publishing contracts for the qui ckl y. Inner Workings had already gone public on AIM, London’s fin a n - games. cial market for small and growing companies. Having benefited only When asked whether she wanted to become an entrepreneur, Keen, pa rt i a l ly from the original multimedia ‘hyp e ’ tha t had gripped the City, unlike most of the entrepreneurs interviewed in this project, replied: Inner W orkings nevertheless got caught in the backlash against multi- “Absolutely not.” She originally thought of herself as an artist and media that rapidly followed it.
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an i m a tor, and res i s tant to being invol ved in commerce. “I find business The chi e f ex ecutive of the communica tions group tha t had previo u s l y fascinating but I also want a life.” owned VIS left his compa n y to join van der Kuyl. He also brought in Ian Keen was unusual: a woman in an industry closely identified with Ritchie, President of the British Computer Society and a successful adolescent boys, of all ages. She reflected: “I was not discriminated entrepreneur in his own right. Ritchie invested in VIS and became against but as a life-form I was completely different. I discovered that cha i r man (a position he has since left). Fol l o wing Ian Ritchi e ’s departu r e this business was a kind of religion. It’s like Hollywood, people want van der Kuyl hired Les Edga r, co- founder with Pe ter Molyneux of to be part of the buzz, but when you are part of it, it’s hideous.” Bullfrog in Guildford. The th ree fo u n d e rs of the next st a ge of the comp a ny ’s grow th Chris van der Kuyl, VIS Interactive, Dunfermline invested enough of their own money to keep VIS going for about nine
Chris van der Kuyl has been involved in the computer industry for as months. They signed their first game, Headz, to Hasbro, and within a long as he can rem e m b e r . Before going to universi ty, he work ed in gam e s few months they got their first venture capital investment, £1 million shops, which gave him the idea of running his own business. This ambi- from 3i, Scottish Development Fin a n ce (part of Scottish Enter p r ise) and tion was confirmed when, while studying computer science at univer- a syndicate of private investors. Since then VIS has signed several more sity, he did a placement with computer company NCR in the US. His p ro j e cts, including a joint-venture with Flexte ch -Te l ewe st to cre ate experience of working for a high tech multinational convinced him: content for interactive digital television, shipped several games and
“There was no way on this planet I wanted to go and work for one of closed the second round of venture capital funding at three times the those companies.” valuation of the first round. Af ter leaving universi ty and training in digital video tech n i q ues, van Van der Kuyl has his critics in the Scottish games industry. Yet he is der Kuyl got his first contract and started VIS with an overdraft and a ack n ow l e d g ed by most commentators to have grea t publici ty skills tha t small loan from the Princ e ’s You t h Business Trus t. One of his main moti- have stood him in good stead when it comes to raising funds. After a vations was to stay in Scotland: he did not become an entrepreneur to th i rd round of funding VIS emp l oys about 100 st a ff and operate s make mone y. several studios. Van der Kuyl desperately wanted to expand the business and found an inve s tor in the shape of a local PR and marketing compa n y tha t was Ian Stewart, ex-Gremlin Group, Sheffield looking to expand into multimedia. They offered to buy VIS and in Ian Stewa r t was invol ved in the games industry from its very ince p t i o n . exchange van der Kuyl took a 25 per cent stake in the new combined However Stewart has never developed a game. His skills are in manage- compan y. ment and retailing. Stewart helped to build Gremlin, in its time one of
After another year, at the end of 1994, it became clear the multime- the most successful compu t er games companies in the UK. After its sale dia market was not growing in the way they had hoped. The games to Fren ch group Infog rammes, Stewa r t became a venture capita l i s t with market, however, was coming out of a downturn. However, to shift VIS NM Rothschild. in t o games requ i r ed serious inve s tment. Van der Kuyl asked his backer s Stewart began his career working for Lasky’s, the hi-fi and computer for £1 million: “They promptly told us to get stuffed.” shop as a retail manager . This gave him fir st hand insight into the begin- At this point, van der Kuyl engineered a management buyout and set nings of the home compu t er boom. Stewa r t sensed the r e was an emerg- about recruiting some professional management. For him, the critical ing opportunity to sell software and support along with hardware to rule as an entrep r eneur is : “To know tha t you could do it you rs e l f – but the domestic market. to get somebody else in who can do it better.” Stewart grew frustrated with Lasky’s and decided to go into business
himself. Stewart sold his house to open a games software shop. It was
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the fir st shop of its kind in Sheffield and one of only a few in the The most important thing in business, he says, is to get the right country. advice at the right time. “A lot of people think they can make do with At that time in the early 1980s most computer games came from the cheap advice, but it’s a false economy.” He took advantage of a DTI
US. A f ew came from pioneer developers in the UK, such as Ocean in scheme, which gave him a £10,000 contribution to have some profes- Liverpool. As Stew a rt was looking for games to sell, he st a rted to sional consultants offer some strategic advice. “We were profitable at examine some of the UK games development companies to see what that stage, but needed to be more confident in knowing what to do they were doing. “And I thought, I could do that.” next,” explained Stewart. “The consultant’s report laid the foundation A clique of boys used to come into Stewart’s shop, often bearing for the next three or four stages of Gremlin’s growth.” demos of games th ey had made. Stew a rt identified a couple with G remlin grew ste a d i ly from twe n ty emp l oyees to about 75. The above average ability and employed them in the office above the shop co mp a n y went public on the London Stoc k Excha n g e at the end of 199 7 . to design games. This was in 1983. In those days you could design a gam e At that time the company employed around 200 people. “Jenny and I with three or four people. wer e looking at ways of en s u r ing the continued growt h, as well as rea l -
H aving set up a small development studio, he realised he knew ising some of our own wealth.” At the end of 1998, Gremlin issued a nothing about distribution. Stewart formed a publishing and distrib- profits warning, following worse than expected sales of a number of ution comp a ny with his partner from the shop, a pro grammer to key titles. By May 1999, Gremlin’s share price had collapsed. French develop the games and someone from a distribution company that publisher Infogrammes, eventually acquired Gremlin for £24 million. advised him. Thus Gremlin was born. Gremlin grew quickly. In those it took only six months to develop a The future of the games industry game. As the portfolio grew, more staff were recruited. However the The market for British-developed computer games is expanding, with programmer partner to the venture decided he no longer wished to be more games being played by more people on more devices and plat- involved. The other partners agreed to buy out his 25 per cent share, forms. The downside is that the home-grown DIY British industry may but as Ste wa r t explained: “The guy from the distribution compa n y, was face more capable, better funded compe t i tors who may be more able to the one with the money. Everything we earned had gone back into the make the most of new technologies. Successful games developers may business.” Stewart and his partner found their stakes heavily diluted. well need deeper pockets to develop more complex games. An industry
They ended up with 11 per cent from their original 25 per cent stake. that has relied on self-taught programmers may require more formal Neve r theless the business continued to do well. The distribution arm training and education to develop deeper technical skills. The British grew into one of the larges t in the UK. But Stewa r t felt the games deve l - cottage industry that thrived when computer games were in their opment part of the compa n y was not getting enough att ention. In 198 9 , infancy might find itself out gunned. Stewart put together a management buy-out with his wife, Jenny. He funded it by yet again mortgaging his house. Strengths
Stewart acknowledges this was high risk. But he and his wife knew The British computer games industry, created by this wave of entre- the business. “The thing is, when you have opportunities like that, you preneurship in the 1980s and 1990s, has several strengths. have to be confident in your own abilities.” Stewart restructured the company and brought in two senior executives, one in charge of devel- opment and the other in operations. The new Gremlin started its new ● Community and critical mass life wit h 21 people. Britain has developed a critical mass of games developers, a strong
community of knowledge to build upon and an educated, innovative
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market of users. It is known by global games publishers as a source for to a flying start might hold it back in future. When computer games first class content. first emerged the industry attracted self-taught programmers. As tech- nology and games have become more complex so the industry has ● Role models and talent st a rted to comp e te for talent th at could be taken into consulting, The industr y’ s success is breeding role models – Molyneux, San, van der financial services or business software. Kuyl – who have inspired others to follow in their footsteps. Computer ● games will be an attractive industry for people that want to work Development costs cre at i v el y with compu te r s and not in a large orga n i s a tion or e-business. The resources needed to compete in the modern games industry are increasingly beyond the reach of the average British company. These ● Scale of opportunity days it takes anything up to £1 million or twenty staff years to develop The oppor tu n i ty for British compu t er games is expanding rap i d l y from a computer game. Some games take three years to develop. computers to television and mobile telephones. The tools for creating ● games are getting more sophisticated. A generation that grew up with Project management skills computer games is in work: they will increasingly be open to the 3-D The rising complexity and expense of developing games means there games format as a visual gateway to the internet and other forms of will be a premium on pro j e ct management skills. Nick Gibson at entertainment and information. Durlacher says many companies lack experienced management of the kind that outside investors like to see in a company. “People invest in ● Creativity ma n a g ement This is one of the reasons why Chris van der Kuyl has been
British developers have a creative open style which leaves them well- so successful at raising money for VIS. It is quite dynamically run. placed to take these opportu n i ties. “We’r e an eccentric culture of in t ro- Investors believe he can take the company forward.” verts,” says Jez San “There are a lot of Brits about who are into comput- ● ers and programming. Its part of pop culture.” John Sutherland from Publishing power Abe rt a y Uni v e rs i ty, which set up the fir st universi ty course for compu te r Br ita i n ’s stren g t h in developing games belies its weakness in market i n g games deve l o p e r s, says the vari e t y of UK - p r oduced games is a source of and publishing them, where US companies such as Electronic Arts and strength. “We are eccentric, creative and less conformist than other French companies such as Infogrammes and Havas International, part E u ropean countries. The Japanese and Americans produce a more of the Vivendi-Universal media group, are far stronger. Games devel- limited range of styles of games. Only the British like and develop all opment is a hit and miss, fashion-driven business. Publishing, market- sorts of games.” ing and distributing games is less risky. The publishers have power in the industry. Weaknesses ● Yet the industry’s strengths are also in many respects a source of its Cottage industry culture main weaknesses: Too few of the British companies have ambitions to become solid co m panies. As a result the industry is unlikel y to att rac t sustained inve s t- ● Skills and complexity ment. John Sutherland at Ab e rt ay Uni v e rs i ty describes compu t er gam e s The indus try is becoming more complex. As technology for authoring en t rep re n e u r s thus: “They have a gara g e mentality. Not enough of the m and playing games becomes more sophisticated, so too do the kinds of want to be Microsoft. They don’t know-how to scale up and there are a kn ow l e d g e requ i r ed. The DIY culture which got the British industry off lot of small, vulnerable companies across the UK. All the y see is the next
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game. They don’t live to build the business. Too much money is crea m e d a huge amount of skill – and nowa d a ys you ’ r e talking about people who – note the preponderance of red Ferraris in games’ company car parks have firsts from Cambridge or Edinburgh – in a way that they get on – there is not enough long-term planning.” and feel totally dedicated towards producing an incredibly important
In a highly vol a tile industry, Brita i n ’s vulnerable companies may lack game.” The computer games industry is increasingly competing with the clout and scale to keep the industry at the forefront of the global “normal industries and normal careers,” for programmers with extra- ma r k et. British companies will lack not just fin a n cial res o u r ces, but also ord i n a ry talents. “To comp e te in the world now you have to hav e ambition and management skills to grow. hugely talented people, it’s not as it was when you could teach yourself programming and come up with a game. We are talking about very ● Geek culture bright people who are extremely expensive.”
While the potential market for games is vast, computer games are still The UK’s first computer games’ courses were developed at Abertay made by geeks for geeks. Peter Molyneux explained: “The games indus- Uni v e rs i ty in Dundee to sustain the local industry. John Sutherland, the try will never become higher profile until it becomes mass market. It’s course tutor explained: “We have – but not by design – the world’s first all very well to have games that get harder and harder to play. But you MSc and BSc courses in computer games writing. These were created just appeal to the same people that bought your games last time. The a fter pre s s u re from local games companies – DMA and VIS – and games we produce tend to be about killing, maiming, mass murdering sta r ted with the MSc in 199 7 , fol l o wed by the BSc in 1998.” Ab e rt ay also
– boys with big toys. What we don’t have is many women in the indus- of fer s a Compu t er Arts BA, which mixes games design with music, audio try, and it’s incredibly hard to attract them in. We have to open up this and animation skills. Entry requirements, especially for maths and industr y and make it more accessible to the general public.” p ro gramming, are very high. Applic ations outstrip the number of
places available by a factor of ten. Prospects and policies The Abertay course seeks to turn out designers rather than busi- Five cri tical areas need urgent attention if the British computer games nessmen, though students can study entrep re n e u r ship courses in the i r industr y is to maintain its position as a world leader and spawn new final year. In addition, most students take courses in Japanese and genera tions of entrepreneurs who can grow substantial companies. ma r k eting. About 30 students a year take up placements with Japanese companies. Other universities are starting to follow Abertay’s lead:
Skills Bradford, Salford, Teeside and Middlesex are offering games-related To secure the skills it needs the games industry needs to form closer courses to undergraduates. links wi th education. Sutherland designed the course in close collaboration with Dundee-
The industry is increasingly staffed by graduates. Peter Molyneux at based computer games companies. Local games companies contribute Lionhead tends to recruit people with maths, physics or computer in kind usually th rough te a ching. Sutherland has st a rted wor k i n g science skills, but also philosophy graduates who have a logical and with Scottish Enterprise and the local authority to encourage games creative mind. Molyneux argues it takes no more than three months to sta r t-ups, in part thr ough a ten - w eek summer school for budding entre- train them in the spe c i f ic skills of games prog ramming. In Scotland skill preneurs. shortages are more pressing, complains Chris van der Kuyl, although
Scotland has the largest number of computer graduates per head of Management population of any country in Europe, according to Scottish Enterprise. As games companies take on more complex, demanding and bigger This also changes the demands on entrepreneurs. Team building is de velopment proj e c ts, so classic proj e c t management skills will become a critical part of Molyneux’s job: “You have to match people who have more critical. Chris van der Kuyl acknowledged that VIS Interactive
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needs a core of experienced managers to supplement the young grad- Networks uate developers. The compu t er games industry sta r ted out as a self-help industry among Computer games companies might get people with these skills by co n s u m e r s who wer e also games prod u c e r s. An industry tha t sta r ted as recruiting from the mainstream IT industry. An alternative would be a digital cottage industry will need to become both more professional to make available timely packages of management courses and exter- and better organised. Successful companies, created in the first wave nal management advice to companies. of the industry’ s growt h can play a role. Pet er Molyneux, toge t her with
Steve Jackson, founder of Games Wor kshop, who also wor ks for Finance Lionhead, is helping games start-ups through his “satellite scheme” he Computer games companies need access to more imaginative tools for runs with US publisher Activision. Lionhead takes an equity share of financing growth. There is a yawning gap between self-finance and less than 50 per cent in the sta r t-up and negotiates on behalf of sm a l l e r sweat equi ty, of the kind that will develop companies of up to ten to companies with the publishers. Lionhead also gives them access to its twenty people, and venture capital that will take a company into high technology, which can take months off the development time for the l evels of grow th and eventual fl o t ation. One answer may be th e fir st game. The fir st two companies in the satel l i te scheme wer e Big Blue growing use of co m pletion bonds to raise bank fin a n ce. A developer can Box and Intrepid. take a publisher’s contract to publish a game and use that as security The most deter mined atte m pt to mobilise the games community into to borrow from a bank. Another might be to crea te special gove rn m e n t - a network has been the Scottish Games Alliance (SGA). backed lending facilities for growth companies. Once upon a time, the Scottish games industry boiled down to one co mp a n y, DMA, the crea tor of the hit game Lemmings, based in Dundee.
Infrastructur e It might have stayed that way had it not been for the collaboration Co mp u t er games pro d u c e rs are innovative when th ey are wor k i n g between Scottish entrepreneurs and Scottish Enterprise the economic closely with innovative, young customers. In the industry’s early days development agency, which spawned the Scottish Games Alliance. those kids work ed with qui te prim i tive compu te r s at home, bought from A Scottish Enterprise team had been looking at the indigenous soft- shops like Laskys. But in future much of the innovation will take place ware industry since 1991, initially focusing on the strengths of the online as more compu t er games, espe c i a l l y multi-player games, are deliv- Scottish universi ties in arti f icial intel l i ge n ce, rob o t i cs, fin a n cial service s ered online. A country with a poor broadband telecommunications and super-computers. In the mid-1990s, Robin Mair began editing the i n fra str u ct u re is unlike ly to ge n e rate innovative usage among Software Echo, a monthly journal for the industry published by Scottish consumers and so is less likely to sustain an innovative games produc- Enterprise, which began to carry articles about games companies. tion industry. As Chris van der Kuyl puts it: “In the knowl e d g e economy, The reasons for the industry’s strength in Scotland, Mair argues, the only piece of infrastructure that really matters is telecommunica- include: the largest number of computer science graduates per capita tions. And right now it’s crap because it is too expensive. The online in Europe; the broad nature of Scottish Highers – the equivalent of gaming community is big and would be bigger . Unless we can sort it out, English A levels – which help Scottish students develop the full range we’re stuf fed. From a commercial point of view, what in the US would o f te ch n ical and business skills as well as creat i v ity; Scottish art s cost me between $5K and $10K a year, I’m being quoted between £60 schools, which have provided a lot of computer-related courses. and £70K a year. I’m dealing with guys in LA and New York and they Mair and Chris van der Kuyl got talking about the number of want me to deliver softw a r e to them, (via the net) we just can’t do it ‘cos co mp u t er games companies in Scotland’s central belt th at did not the cost is so great for a company of our size. We are being absolutely k n ow each oth e r. They agreed the companies would benefit fro m stiffed. For a high tech business, it’s the biggest problem.”
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getting together, if only informally, to discuss common issues such as (www.scottigames.org), a Scottish developers’ lounge at trade shows, recruitment. The SGA grew from that seed. seminars and regular meetings for the chief executives of the main The com pu t er games industry in Scotland is rel at i v e l y small, with no companies, as well as product competitions. significant publishers and no large companies such as Eidos. However, Full members pay £500 and are featured on the website. One of the according to Robin Mair and others, new firm formation continues to SGA’s biggest successes has been its presence at trade shows. E3 is a be healthy. Fig u r e 3 shows the rel a tive position of the SGA members in games industry trade show that takes place in the US. At a recent E3
1998/99. Two companies missing from this table, who were members meeting an est i m ated £7 million of deals we re signed by Scottish of the SGA in 1998 are Lesley Keen’s Inner Workings, which went into companies. rec e i v e r ship and DMA, which was taken over by Gremlin and then sold The SGA is still young and relatively small. Its supporters argue that to Fren ch publisher Take 2. The SGA no longer classifies DMA as a it has established enough of a critical mass to help the Scottish indus- Scottish company. try develop. One promising development for the British industry as a whole was the recent establishment of Tiga, the independent games
Figure 3. SGA members, 1998/99 alliance, to provide some of the same ser vices across the UK industry as a whole. Ranking Company Turnover (£m) No. of Employees 1 (7) Red Lemon Studios 1.12 (0.53) 40 (20) Conclusion 2 (3) Visual Sciences 1.0 (1.2) 49 (33) The British computer games industry is at a critical point in its devel- opment. A community of la r ge l y self-taught deve l o p e r s has turned its e l f 3 (2) VIS Interactive 0.72 (1.24) 65* in t o a world class industry. The next few yea r s will prove whether it will 4 (8) Absolute Studios 0.41 (-) 14 (7) s u ffer the fate of earlier innovative British industries, built on a
5 (5) I-Design 0.35 (0.34) 11 (9) mixture of entrepreneurship and DIY knowledge – shipbuilding in
Glasgow, textile machinery in Lancashire – which were unable to meet 6 (6) Steel Monkeys - 18 be t t er org anised, funded and skilled foreign compe t i tion as the market Source: Scottish Games Alliance matured. The first wave of knowledge entrepreneurs in the industry Note: Previous year’s figures are in brackets ha ve crea ted an enormous opportu n i ty, which policy maker s, inve s tors *Now 100 after recent takeovers and educators need to play a role in helping fut u r e gen e r ations to entre- preneurs to exploit.
The SGA was formed in December 1996. Although the Scottish gam e s companies are fiercely competitive, they operate in a very large inter- national market. They rarely compete with one another directly. “We are all in the same business, but we are not fighting for the same publishing deals,” says DMA’s Brian Baglow. There is an understanding that members of the SGA will not poach staff from one another, but there is no enforcement mechanism if the rule is violated. The SGA was set up with six founding games development compa n i e s to impr ove PR, enhance the industry’s credibility and aid recruitment in part by improving links with academia. The SGA runs a website
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Animation
The industry overcomes the fragility of the firms that make it up, thanks to the local clusters and international networks that sustain it. While individual companies are often small and vulnerable, the anima-
5. Entrepreneurs and networks in tion sector as a whole has greater resilience and flexibility thanks to these network s. The animation industry exemp l i f ies why a combinati o n action: animation of local cluster s and intern a tional network s matt er in an industry. Small
animators are sustained by working in close proximity to one another to share ideas, talent and contacts. Animation is a small industry in world terms. Quite a lot of animation projects are international joint-
ventures, which require pooled funding and collaboration between teams working in different countries. The international networks that The UK’s animation industry punches well above its weight. The indus- organise the industry – through animation festivals for example – are try’s international reputation, based on Oscar-winners such as Wallace as vital as the local clusters. A small company will be extremely fragile and Gr om i t (made by Aar dman), belies the frag i l i ty of ma n y compa n i e s if isolated. However as animation shows it will be strengthened if it within it. Local production clusters, combined with extensive interna- finds itself in a strong local cluster, such as that emerging in Bristol tional networks, sustain the industry and protect it from the volatility around Aardman and with access to these international networks. of the companies that make it up. Animation in the UK is largely a creative, craft industry, made up of Fragility small companies working on relatively low-budget projects for smaller B ritish animation th rives on a sense of c re ative community. Most markets. Almost two-thirds of UK animation companies employ fewer a n i m ators asp i re not to riches but to cre ative success and crit ic a l than ten animators. Only 5 per cent employ more than 25. According acclaim. Animation entrepreneurs tend to run small businesses, with to one of the most comprehensive surveys of the UK animation indus- limited ambitions for growth. Most are happy simply to survive and try (under t a ken by the consultancy SCPR for Skillset, the tra i n i n g make a living. They have neither the markets nor the capital to sustain orga n i s a tion for the film, video and TV and multimedia sectors, in June larger companies.
1998) the industry employs between 3,000 and 3,500 people in about British animation highlights how the scope for entrepreneurship is 300 animation companies in England and Wales. Almost 20 per cent of co n d i tioned by many factors: it is rare l y simpl y the prod u c t of the driv e respondents had an annual gross income of under £12,000 and only a o f the individual entre p re n e u r. British animation businesses are tenth earned above £40,000. constrained by the opportunities available to them. They mainly work One contras t puts the UK industry’ s position in inte rn ational perspe c - for national bro a d c a ste rs or advert i s e rs, often on re l at i v e ly small tive. The US animation industry has produced hundreds of hours of budgets for children’s programmes. That is one reason why animation long-running animation series, such as the Simpsons, not to mention is home to micro-entrepreneurship. Entrepreneurs with ambitions for So u t h Park and Disney’ s feat u r e length cartoons. Yet the r e are only thre e rapid growth would not be attracted to animation in the first place. and a half hours of finely crafted Wallace and Gromit animated films. The British industry operates in the shadow of the majo r US stu d i o s ,
As in several other industries Britain’s strength lies not in volume su c h as Disney and Drea m w ork s, which fin a n ce big budget prod u ct i o n s pro d u c tion by large companies, but in high valued-added craf t prod u c - for global markets. Nor do British animators have the sta te support tha t tion by relatively small companies. has helped sustain larger companies in continental Europe. In an
increasingly global market, Britain faces growing competition from
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Surfing the Long Wave Animation
animator s in countries such as China, where “commodity” animation damn difficult. No animation company can succeed on its own. It’s all can be acquired cheaply. about partnerships.” Which is where the networks and clusters that The UK has traditionally excelled at high-quality, labour intensive sustain the industry come in. animation – a craft process designed for the one-off special such as The Wrong Trou s e r s or The Snowm a n . With the exception of Co s g rove Hall, the How networks offset fragility UK industry has not been gea r ed up to produce either animation serie s Animators see themselves as part of a creative community. Animation
– twenty or thirty shows at a time – or a feature-length film. co m panies are often small, short-lived, sometimes coming toge t her for This prim a ri l y craf t-based British industry is in the midst of fa r- re a c h- one pro j e ct and then disbanding. This fluid, small-scale stru ct u re ing technological change, brought on by computer animation. This pro m o t es collaboration to ful f il the needs of la r g e clients. Some 36 per should lower pro d u ction costs and so help expand the market for cent of the companies surv eyed by Skillset had experi e nce of c o- animation, but it also poses a challenge for companies based on tradi- productions with other UK companies, while just over a quarter had tional skills in drawing, model making and still-frame animation. been involved in international partnerships.
The industry’s weakness is its limited ability to replicate and spread Compact clusters help sustain the industry because they promote its products over larger markets, that could thus sustain larger compa- collaboration on production. International networks however are also nies and attract more investment. Distinctive know-how is vital to a vital because they give access to partners, larger markets and new kn ow l e d g e-based business but it is not enough to sustain an ambiti o u s , sources of money. growing business. British animation has remained a cottage industry Networks tie together this small scale and fluid industry in four because it has lacked the compl e m e n t a r y res o u r ces needed for grow th : different ways: funds f or investment, management expertise from outside the indus- try, skills in marketing and distribution. ● Net w ork s are vital in rap i d l y sourcing free l a n ce talent. Net w ork s are Andr ew McBean of ITEL, majority shareholders in Manchester-based vital for freelancers: their relationships with a small numbers of
C o s grove Hall, explained the pre s s u res on an industry th at in his fi rms are often what keep them afl o at, esp e c i a l ly if th ey are words is reaching a watershed. “We can make series animation for working on projects of their own. These informal networks serve £1 70,000 per half ho u r . ITV will now pay £45,000-£50,000 per half-hour as sources of work, skills training and also sources of knowledge so you have to find a good two-th i r ds of the budget from somebody else. about grants, rights and royalties. A distr ibution advance against a show is around £40,000. If you go to ● Sub-contracting: animators, according to John Carey: “Help each France you can get 35 per cent of the budget – a mixture of broadcast other out an awful lot. A lot of subcontracting goes on and there finance and money from CNC, the French state animation funder. So is quite a lot of cross-fertilisation. We believe by sticking together you might get, say, £60,000 from France. But that means some of the we are probably better able to compete.” work will have to be done in Fran ce. You have two clients who both want ● Animation is small industry worldwide. UK animators are increas- to see scripts, storyboards etcetera. And you still only have £140,000 of i n g ly invo lved in inte rn ational co- p ro d u ctions. Animation fe st i- your £170,000. So you need an outside equity investor to give you the vals and screenings are a regular part of the calendar. Most UK final 20 per cent – he then wants some equity. And if you’ve done this an i m a tors not only know each other and each othe r ’s work, but also deal wi th ITV through one of the broadcasters, they’ll take equity as are familiar with their colleagues overseas. well. So you can end up as the prod u c e r , its taken you two yea r s to make ● The animation industry is concentrated around the media indus- the sho w, you’re taking say a 10 per cent fee (£17,000 in this case) and try it serves. These networks provide ease of access to clients. The you may end up, if you ’ r e lucky with 20 per cent of the equi ty. It’s pret t y epicentre of the UK industry is in Soho, but it has several other
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Surfing the Long Wave Animation
‘p o c kets’ of an i m a tion companies, most notably, Bris tol, Cardi f f an d with an “arty crowd, I put plays on with the likes of Stephen Poliakoff Man chester. These clusters were formed in slightly different ways, and Nigel Planer.” Even then he says, “we attacked doing school plays wit h different ingredients. in a kind of pro f essional way, took them on tour in the school holidays
and so on. I got to the point where I thought, I really love this,” but Customer-core clusters decided on film rather than the the a tre as he was intere s ted in the tec h- The Soho and Cardiff clusters, in particular, have customers at their nical as well as the creative aspect of filmmaking. core. They are made up of many small companies, closely linked to the “Much to my father’s annoyance, I decided not to go to university, customers for their output: the advertising and media industry in because I wasn’t particularly academic” he says. He started as a messen- London and S4C the Welsh language broadcaster in Cardiff. ger with an animation company in London at the start of the 1970s.
Af ter thr ee yea r s free l a n cing he got his fir st ‘prop e r ’ job in the cutting Soho rooms at Halls and Batchelor where he developed the specialised skills Al m o s t 60 per cent of co m panies and two-th i r ds of the work f orce in the of animation editing. When the firm folded, he moved to Richard animation industry are based in Greater London. As Jerry Hibbert of Williams who at the time, “was regarded as the crème de la crème of Hibbert Ralph, based in D’Arblay Street Soho, puts it: “I can do pretty animation studios.” From there he moved to the BBC as an assistant much everything I need to do in a few streets around here.” ed i tor, working on live action, drama and documentaries. Disillusioned
Physical proximity accounts for most of Soho’s ability to act as a by the BBC he moved back to Soho to complete his animation appren- network. People, especially when young, tend to go drinking together ticeship working on commercials. a fter work and meet people from other companies. Prox i m ity to Af ter a couple of yea r s he took the plunge and set up his own editi n g customers is also critical. Hibbert Ralph and other animators work co mp a n y. He ren t ed a room in War dour Street tha t his friends describ e d largely for the advertising industry that is also centred in Soho. as “a wardro b e ” . From the r e he sta r ted a compa n y called Fil m r ights with two partners, which lasted seven years. ● Soho case study: John Carey Films Carey was inspired by the example of David Puttnam, the creative The offices of John Carey Films in a quiet street just north of Soho have producer of Chariots of Fire. Carey liked the combination of artistic been rented by a succession of animation companies since the 1960s. work and running a business tha t producing implied. “I took to run n i n g
Like others in the business, Carey’s sojourn there may also be limited a business quite naturally,” he says. “I don’t see a conflict between the – the studios we re fl at out working on the remaking of C a p t a i n artistic side and the business side of his work. I go back to the very old Pugwash, but nobody could say what would happen after that. Carey fashioned idea of a sort of fil m m a k er producer which had been arou n d is used to such levels of insecurity. in the 1920s and 1930s.” Care y’s career is testimony to the resilience of the Soho animation The creativity comes from marrying creative work with the business cluster. His career has taken him through a succession of animation discipline, he feels, especially with budgeting, “where you are working co m panies locally. Many of these folded after a brie f pe r iod of su c c e s s . out what you can do for the money, what te ch n i ques will work best and Yet des p ite this turmoil, the cluster it s e l f is still strong. The Soho so on. Where the money can be best spent to make a real imp a ct on th e c l u ster has provided Carey with near continuous emp l oyment for audience.” almost three decades. C a rey ’s most recent pro d u ction was the remaking of a n i m at i o n Care y wanted to be in the film business from boyhood. His father cl a s s i c, Ca p t ain Pugwas h . It took him a couple of yea r s of ne g o t i a tion with composed music for films and his mother ‘had something to do with Pugwash originator John Ryan to get the deal. Then he developed new the the a tre.’ At West m i n s ter school he was lucky enough to be involv e d sc r ipts and a new approa c h to the animation and sent his ideas to broa d -
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Surfing the Long Wave Animation
casters. The project was finally financed by the Britt Allcroft company, If the Cardiff animation cluster succeeds and prospers it will be who had intern a tional success with Thomas the Tank Engine. Britt Allcrof t largely due to the knock-on effect of S4C’s determined and ambitious is essentially a cha ra c ter licensing compa n y. It fin a n ced the prod u ct i o n commissioning policy to build up a local supplier base and give it access o f the series while retaining rights to exploit it on te l evision and to local and international markets. video, and through merchandising. Care y accepts that animation is more difficult to finance than live Company-coreclusters action films, “because on the whole animation is for children and chil- While demand has been the honey-pot at the heart of the Cardiff and d re n’s budge t’s tend to be smaller.” And animation is expensive – Soho clusters, the position in Bristol and Manchester is slightly differ- roughly four times as expensive as a live action children’s programme. ent. In those cities, the initial demand for animation skills helped to
Howe ver the attraction is that animated films can have a very long cre a te significant companies in UK ter ms, Cosgrove -Hall in Manche s ter shelf life. Carey edited The Snowmanfor Channel 4 in 1980: it is still and Aar dman in Bris tol, which both now act as impo rtant hubs in the i r shown every Christmas. “So the profile of animation is very different own right within the cluster. That is not to say that other factors like from live action TV in terms of finance. It tends to be a much longer demand, supply of talent and prod u c tion facilities do not matte r . They burn, it tends to take longer to get the financing arranged and get the are of critical importance. It is simply that in these clusters two rela- pro d u c tion toge t her and once it is toge t her the income steam comes in tively large companies have emerged to provide added momentum for over a much longer period. It’s kind of pension fund stuff.” the cluste r. The entre p re n e u rship th at went into the form ation of these companies has had a multiplier effect on the cluster as a whole. Cardiff
The animation industry in South Wales started 1982, when S4C, the Manchester Welsh-language fourth station, was launched. It now includes several The Manche s ter network is a legac y of a single large compa n y, Cosgrove small and medium sized animation companies, including Ciriol and Hall, the “animation factory of the north” as it describes itself.
Cartwn Cymru. In the 1980s, S4C made animation series for children, Fou n d e r s Mark Hall and Brian Cosgrove trained in grap h i c design and i ncluding the successful S u p e r Te. d Since then, it has moved on to worked for Granada, the ITV broadcaster in the north-west. On leaving commissioning more ambitious literary-based products, such as the Gr anada, the y set up a compa n y toge t her (Stop F rame animation) on the series of animated Shakespeare’s tales, Opervox, and most recently the basis of a contract to do an advertisement for the TV Times. That led Canterbury Tales. to fur ther advertising work and eve n t u a l l y Thames TV made a takeov e r Di re c tor of An i m a tion Chris Grace at one sta g e had a budget of ab o u t bid. Cosgrove Hall became the sole provider of animation to the ITV
£2.5 million per year to commission animation. The multiplier effects, network. th rough inte rn ational part n e rships for exa mple, made th at worth This was the heyday of vertical integration in TV companies – before about £6 million. independent producers came on the scene – and Cosgrove Hall grew to
Robin Lyons, of Ci r iol, is criti cal of S4 C ’ s emphasis on Welsh language: 150 people. It became one of the biggest animation companies in the “S4C is not interested in people who are independent. They are very world and was able to train its own talent. hands on and act as producers rather than commissioners.” Lyons says When Thames TV lost its licence as a broadcaster to Carlton, Thames that fo r him the main advantage of being in Cardiff is that it is cheap. wanted to close the company down, retaining only Cosgrove and Hall The local industry has built up a critical mass of skills which supports and outsourcing all pro d u ction. The distri b u tor ITEL subsequ e n t ly companies like Ciriol and post-production facilities have improved. bought 75 per cent of the company that now operates as an indepen-
dent pro d u c e r. That Manch e ster still has a fu nctioning animat i o n
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Surfing the Long Wave Animation
industr y is testament to Cosgrove Hall’s success and its role in support- However, at the centre of the Bristol cluster now stands Aardman ing talent. An i m a tion, the best known modern British animation studio. It att ra ct s talent, work and inve s tment to the local industry. Dave Sproxt on is one
Bristol of its founders. The Bris tol cluster, the most important in the UK outside London, got started in the 1970s when Dave Sproxton and Peter Lord, the founders ● Dave Sproxton, MD, Aardman Animations of Aardman Animations, started making models for the BBC children’s If the terms “animation” and “entrepreneur” don’t always sit happily p ro gramme, Vision On, which was produced in Bri stol. Aa rd m a n together in what is basically a cottage industry, then Dave Sproxton is Animations is at the core of a network of Bristol animators. However, the exception that proves the rule.
Colin Rose, head of animation at BBC Bristol, points out that the city S p rox ton st a rted Aa rdman with a sch o o l friend, Pe ter Lord. Both in the 1970s was fertile ground for media industries, with BBC Bristol, their fathe r s work ed for the BBC, which helped “in tha t we had a camera a well-respec ted university drama department and the Bristol Old Vic. in the cupboard,” and also a contact in the BBC, Patrick Dowling, who
An i m a tion benefited from the a tre skills such as lighting and tel e vis i o n was at that time producing the children’s programme Vision On. skills such as camerawork. Sproxton and Lord had done some work for Vision Onwhile they were The BBC played a criti cal role in getting the cluster going by commis- still at school and after graduating (Dave in geography and Peter in sioning early work. Rose was in charge of a BBC project to attract new English) they came to Bristol, as that was where Vision Onand its follow film talent called 10 by 10. This brought him into contact with the film up Take Hart was produced. sc hools and he realised the r e was a whole gen e r ation of an i m a tors who For a few ye a rs in the mid to late 1970s, th ey wor ked “hand to were making short films. Rose set up the BBC Animation Initiative in m o u th ”, making animated inserts for ch i l d re n’s pro grammes. Like 1991, whi ch led to the production of the Wallace and Gromit feature, many in animation, they were rescued from this relative obscurity by The Wrong Trousers, among other successes. the arrival of Channel 4. A year before Channel 4 went on air, its then
The Bristol network is fairly self-contained. Rose explained: “You can head Jeremy Isaacs held a party at the Cambridge Animation Festival do everything here: we have the full range of pre- and post-production to meet animators. Sproxton and Lord met him and, after sending him down here.” The Bristol network has emerged from a series of moves some of their mater ial, wer e invited to meet the commissioning editor. by commissioners, entre p re n e u rs, film schools and public policy While at tha t meeting, the door opened and Isaacs put his head rou n d ma ke r s, each building on the other but in a fairly ill-c o ord i n ate d that door and said, “I’ve just seen this five minute piece, can I have ten fashion. Julian Mellor of Bri s tol City Council commented: “Bris tol is the of them for the opening week of transmission?” second city for media in the UK. Forty per cent of world output of This was just eleven months before C4 launched. Lord and Sproxton natural history programmes comes from Bristol. But that has come di d n ’t have the capacity to meet Isaac’s requ e s t. So the y offer ed him fiv e about mo re by accident than by design. We’ve discovered that we have sh o rts for the opening and five later . The series, which became the cele- a sleeping giant on our hands.” brated Animated Conversations, was delivered about six months late and The Bristol network is informal, Rose explained: “It’s tribal. It works went out in the week of Channel 4’s first anniversary. because we all know each other. It’s a collaborative cottage industry of Af ter the success of An i m a edt Conve rs a t i o n,s “the phone sta r ted to rin g small companies and freelancers. It does not need and could not be off the hook” from advertising agencies and “a world that we thought organised by large companies or institutions. The great success of the we would never get into” suddenly opened up. “We thought we’d be in Br itish animation industry is its individ u a l i ty and creat i v ity – it doesn’t and out of fashion in about six months,” Sproxton confesses. look like mass production.”
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Surfing the Long Wave Animation
Th e y vie wed the cha n ce to work on advertisements as an opportu n i ty Given all this, he thinks it is unsurprising that the animation indus- to make money to rei nv e s t in the business. Commercial work is one way try is not more entrepreneurial. “There are people in Aardman who th at th ey subsidise the re s e a rch and writing of b ro a d c a st ideas. could go off and do their own thing, but frankly, they’re not going to,
Aar dman earns about £3.5 million a year from commercials, about half it’s too much like hard work. It works for them here. They get more of whi ch comes from the US, where they have developed the long- creativity out of their souls than they would do on their own. The running Chevron campaign among others. As a result, Aardman has c re ative industries, if th ey are driven by th i rd party money, don’ t always being able to pay its way from existing work. Commercials still necessarily get the best out of people.” rep r esent the backbone of their fin a n ces and have helped fund feat u re s In addition, “the margins are so slender now” in TV work, he laments. li k e, A Close Shave(b u d g et £1.2 million, of wh i ch Aar dman put in 25 per Hence, for some of the smaller production companies, “it’s a hobby, a cent). This also means the y have not had to chase co- fi n a ncing deals for lifestyle thing, not a business.” In addition, holding on to rights and broadcast material, as others in the industry have to do. royalties is difficult. “We’re lucky we’ve got a fair bit of clout” and now In 1985, Lord and Sproxton were joined by Nick Park who came from have very good, but expensive, media lawyers. the National Film School. Park went on to crea te the famed Wallace and Sproxton never planned to go into business. He just wanted to make Gro m i t series, which won him an Oscar. The compa ny ’ s subsequent fame films. When he and Lord started out he admits they were naive about brought more interest from advertisers in what is a virtuous circle. It money. Channel 4 had to point out to them that they needed to add a also helps develop the skills of staff members. “Broadly the arrange- mark up to costs to make a prof it. “Then commercials came in, but sti l l , ment is, you earn your keep on commercials and we will find both time we didn’t regard it as a business and strangely, I still don’t regard it as and oppo rtunity, a budget and a TV slot, for your own work,” explains a business. It is a business but I’m not a businessman.”
Sproxton. Aardman has a full-time staff of about 70 but has employed Does Sproxt on see himself as an entrep r eneur? “Prob a b l y. I like to do more than 100 freelancers when the company has been working on things differently, but not in the opportunist sense. I knew there was large projects. a value in what we did and if we liked it, then other people would too.
Aar dman has helped to crea te a pool of free l a nc e r s in the south- we s t Wallace and Grommitt is a good example: it is Nick’s wonderful world. and it has spun out a couple of small studios. When it started to prove So we tend to be driven by our own ideas, if we enjoy them, the rest of difficult to recruit good animators the company helped set up the the world will enjoy them.”
Bristol Animation Course at the University of the West of England “I’m not intere s ted in making money for its own sake. What I’m inter - (UWE) (see below). ested in doing is creating stuff. My father was a producer with the BBC Spro xton believes it has become harder for entrepreneurs starting a and we’d always been led to believe that the creative stuff was really business on their own from scratch. The amount of re g u l ation is what mattered in life. And we were led to believe that if you did what “st a c ked agai n s t two guys in a bedroom.” Once you get to Aard m a n ’s size, you believed in, you’d make a living out of it.” “ you ’ ve got people to handle tax and National Insuran ce and tha t kind Aa rdman is run as a kind of cre a tive community as much as a of thing, but for an individual, it’s got tougher to deal with all the reg u - co mp a n y. Ac c ording to Sprox ton it epitomises the industry: “It’s a lation.” The kit for computer animation is getting cheaper but “you’re meeting of artists, rather than in a live action film festival, which is a not gonna compete with the big outfits in London ‘cos the learning meeting of commerce.” curve is still very steep.” The loss of the “local bank manager” means tha t banks are less awa r e of wh a t is going on in their area. “They’ r e out Prospects and policy to make money, not to help businesses grow. I think they’re all thieves The British animation industry has several strengths: four relatively and brigands.” strong cluster s; an intern a tional rep u t a tion for high-qua l i ty craf t work ;
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Surfing the Long Wave Animation
a reasonably strong talent base fed by film and art schools; an estab- will have to be multi-skilled in serving all these markets, rather than lished, albeit small, domesti c market for its output thr ough adverti s i n g pure animation companies. and broadcas ters. Moreover, the market for animation skills should Many animators believe the industry needs active public policy to expand with the growth of computer games and broadband commu- address the challenges it faces. They differ markedly on what kind of nications, which will allow the distribution of much richer media policy is required. Proposals to secure a market for local production content on the internet. Animation created using software such as through quotas or production subsidies are controversial even within
Ma c ro m e d i a ’s Flash, is one of the growt h content areas on the inter net. the industry. The str uct u r e of the British industry seems to be adapting to this new Ho wever the r e is a consensus tha t the industry needs closer links with tech n o l o g y . Companies invol ved in digital and compu t er animation ten d further and higher education to make sure it can recruit the talent it to be younger but as a result smaller than those in other sectors of needs. Small animation companies operate with tight margins and have animation. They are also likely to have a mix of skills and clients. little time for on the job training. An i m a tion is only one part of their work, which also invol ves web design An i m a tion training has been part of Br itish art school education since and int er net tec hnologies. Most of the industry’ s growt h is expected to the late 1960s. Clare Kitson, former commissioning editor for animati o n come f rom increased demand from websites and online advertising. at Channel 4, believes this is one of the problems: “Animators in the Animation is a relatively young industry: about a quarter of the work- UK are most ly trained at art schools, rather than film schools. So force has ente red the industry since 1995. The ave ra g e age in th e although they are creative, they are not necessarily technically aware Skillset surve y was 34, with only 9 per cent aged 50 or more. The indus- nor good at narrative.” Stuart Till of Polygram says the industry has try should have injections of ne w ideas and talent from people trai n e d “under-invested in training across the board.” London, and Soho in on new technologies. particular, is home to many of the world’s leading animation compa- Yet digitalisation will pose new challenges for an industry largely nies, but they have an acute problem finding recruits with the right based on traditional tacit skills and know-how. Some in the industry combination of fine art and IT skills. ex p e c t prod u c tion costs to be lower ed, “Lots of studios have got in more The long-ter m needs of the industry are only likel y to be met by inno- computers,” says Mark Taylor, who operates a small 2-D animation vation in the way training is designed, delivered and funded. Out of studio. “Computers speed up the work and can cut some costs by up to necessity Aardman Animation in Bristol has developed a new course,
70 per cent. We have two compu t er units, with operators doing the work the Bristol Animation Course, for animators with the University of the of eight people.” West of England. The post-graduate short course (six months) is aimed Ho we ve r , compu te ri s a tion will also allow more basic animation work at people with some relevant experience who want to become anima- to do done ove r seas. “A lot of work is going on in Mainland China at the tors. Initially, it was designed specifically to train puppet animators for moment,” says Andrew McBean of ITEL, “because of wage rates. If the Aa rd m a n’s fe at u re film C h i cken Run, which was soaking up all th e tec hnology allowed tha t to happen but crea tive control to remain in the fi rms’ skills and those of a l m o st a hundred fre e l a nc e rs. Aard m a n
UK, for exam ple, it may not cut costs, but it would raise the value of the initially provided the teaching and equipment for the course. Since work to the UK.” The British industry’s prospects, in other words, rest then, UWE has developed a more general animation course, with help, on its abili ty to innovate, by using new technology to build on its repu- both in money and in kind, from other firms in the Bristol animation tation for high-quality production. co m m u n i ty, including A for Animation. The companies provide tuiti o n , A n i m ation skills will be absorbed into other media – compu te r placements, support and mater ials for the proj e c ts tha t form part of the games, web design and interactive TV for example. A new generation in s truc tion process. They also contrib u t e to an Animation Training Fun d of an i m a tion fir ms may emerge to exploit these opportu n i ties but the y
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Surfing the Long Wave
that helps cover some of the £6,000 annual fees. Most of the students on the course are from continental Europe. Spro xton says the course was set up because: “There is a fundamen- tal shortfall between the expecta tion of students going to college to do 6. Knowledge entrepreneurship an i m a tion and the ability of the colleges to deliver on tha t expectat i o n and for the industry. The craf t angle, I think, has been slightly denuded policies because of the cha n g e from polyte ch n i cs to universi ties. So the course s ha ve become more res e a r ch -d riven and less, hands-on craf t driven.” The Bristol course is five days a week, eight hours a day and is designed to turn out immediately employable animators.
It would be a mistake to over state the impact public policies can have
on entrep re n e u r ship and innovation. The most power ful forces drivi n g entrepreneurship are:
● technological change and knowledge creation, which open oppor- tunities for entrepreneurs to develop new products, services and organisations ● cultural change, which will make it more acceptable to take risks, work for yourself and start a business ● economic changes which will make working for large corporations
less appealing and working for yourself more rewarding ● the willingness of financial markets and investors to sanction risk taking.
For a gove r nment tha t wants to prom o t e entrep re n e u r ship and inno- vation, the best policy would be to work with the grain of th e s e
changes. Entrepreneurship has become so critical to the success of a modern economy, because it helps determine the rate at which new ideas are
turned into new usable products and services. It cannot be left to ch a nce. The entre p re n e u rial tra n s l ation of ideas into businesses em e r g es from the way partn e r ships and teams are formed thr ough the
networks and clusters, which give entrepreneurs access to the other resources they need to build an organisation. Public policy can af fect every aspect of this process, f rom the skills and capabilities of entre-
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Surfing the Long Wave Knowledge entrepreneurship policies
● preneurs, to the scale of the market opportunities they sense and the A more coherent approach to draw together education, finance for ease wi th which networks and clusters can develop. business, knowl e d g e tran s f er from universi ties, regional and cluster We need a new infra stru ct u re to support entre p re n e u rship. The development, stock options and employee ownership. The ingredi- industr ial economy relied upon public and privately financed infra- ents of entrepreneurship policy are scattered across government. structures of transport and energy, water and sanitation, factories and Entrepreneurship policy is not confined to tax and business regu- office buildings. An economy in which knowledge and innovation are lation. ● d ri ving growt h needs a differ ent infras truct u r e. Modern versions of ol d A more inclusive approach to open up entrepreneurial opportuni- physical infrastructures, for transport and utilities, for example, still ties and fos ter entrep re n e u r ial network s in more depressed reg i o n s , mat te r . Good intern a tional travel links are vital for any region tha t seeks in which the economic culture has been shaped by dependence on to play a role in the global innovation networks that drive science, for la r g e manufactu r ing companies and where the rate of sta r t-ups and example. The coverage and cost of new hard infrastructures of broad- business growth is relatively low. band te l e c o m m u n ic a tions, computing and communica tions, will be crit- ical. Before describing some of the specific policies this new approach H owe v e r, alongside to p -qu a l ity hard infra stru ct u res a successfu l could embrace, we highlight two essential changes in the machinery economy will increasingly need “soft” infrastructure to provide a plat- of government policy. form for learning, creat i v ity, entrep re n e u r ship, innovation and business cre a tion. The vital soft infras truct u r es include inve s tment in educati o n , The Knowledge Bank skills and creativity; a formal knowledge-creating infrastructure of The Knowledge Bank would be a largely publicly funded but mainly scientif ic research and cultural innovation; a financial infrastructure privately run organisation, that would become a critical player in the of business angels, incu b a tors and venture capita l i s ts tha t allows fin a n - process of innovation and entrepreneurship. It would work in tandem cial capital to be attracted to the best ideas and talent. wi th the small business service to incr ease the rate of business sta r t up
Over the past decade, the UK and many other countries have devel- and growt h, partic u l a r l y among knowl e d g e-based businesses. It wou l d : oped a raft of policies to widen access to capital, to speed business cre a tion and to make it easier for universi ties to spi n -o f f businesses. The ● Op e r ate a time bank for manager ial talent, donated by large compa - task now is crea te a policy fram e work tha t is more coherent, system at ic , nies and management consultancies, to work with small innovati v e c o mp r ehensive and inclusive, to pro m o te entre p re n e u rship acro s s co m panies. The Knowl e d g e Bank would operate a broke r ing sche m e society. to match companies to executive talent, either for permanent post-
ings or for secondments. ● A mo re systematic approach, because a widely spread capacity for ● Pro m o t e local business clubs as the basis for cluster s and networ ks , e n tre p re n e u rship has become so vital to economic and social akin to the Cambridge Network or the First Tuesday initiative. The
health. Entrepreneurs do not just create jobs and adjust to change. Kn ow l e d g e Bank would fund inte rm e d i a ries and facilita tors whose Ent repreneurship helps keep society open. Our entrepreneurial goal would be to bring together entrepreneurs, larger companies, capaci ty cannot be left to the chance emergence of mavericks. We investors and business services companies, to strengthen creation
need to invest in it more systematically. infrastructure in a locality or city. ● A mo re comprehensive approach because entrepreneurship helps ● Open a patent bank, into which large companies and universities to cr ea te value in large and small orga n i s a tions, public and priv ate. could donate intellectual property that they did not know-how to
Ent repreneurship is not just a business issue. e x p l o it. Sev e ral large companies, such as Dow Chemicals, hav e
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Surfing the Long Wave Knowledge entrepreneurship policies
made “redundant” patents available to small business partners to pr oper fin a n cial support to take their plan forwa r d. (Details of thi s exploit. Dow only protects a small proportion of its patent portfo- are set out below.) lio. The Knowledge Bank would operate an intellectual property The creation of the Knowledge Bank should form part of a much
sharing scheme across the UK corporate sector. A company that wider reorganisation of the DTI to turn it into a much more effective found one of its patents was being taken up could share in the agency for promoting entrepreneurship and innovation. proceeds. ● Inc or p o rate the Patent Office, with the aim of tu r ning it into an arm De-merging the DTI of industrial policy rather than simply an office that administers G ov e rnment re stru ct u ring will not dram at ic a l l y inc rease entre p re- pat ents. The US Patent Office has played a critical role in promot- neurial activity. Often, government restructuring turns into an elabo-
ing biotechnology. Similarly, the UK patent office could actively rate and unproductive exercise in shuffling chairs. With those caveats promote knowledge-based industries, were it clearly part of an in mind, it is also glarin g l y obvious tha t the machi n e r y of g ov e rn m e n t organisation devoted to that goal. is extremely poorly adapted to the demands of an innovation-driven ● Pr ovide access to the “angel-plus” level of fin a n ce tha t many growt h kn ow l e d g e-based economy. There is a strong case for rad i cal ref orm sta r t- companies find it hard to raise. Venture capital is an increasingly ing at the centre with the main business-oriented department: the well-funded and well-organised industry in the UK, although still Department of Trade and Industry.
v e r y conc e n trated in the south -e a st. Business angels, pri vate The case for radical surgery at the DTI is very persuasive. The depart- inv e s tors who back very young companies, are also incre a s i n g l y wel l ment resembles a 1970s conglomerate: an unwieldy assemblage of organised, although they are nowhere near as well established as activities, gathered over a long period, often with little synergy or
they are in the US. However, companies often experience a gap purpose. between angel investment, which usually goes no further than The DTI combines separate departments tha t used to deal with trad e £500,000, and venture capital inve s tment, which norma l l y sta r ts at and energy, as well as various industries that used to receive state
mo re than £1 million. This gap often distorts a company’s devel- su p p o rt. Its acti v ities are bew i l d e ri n g ly diverse. They ran g e from indus- opment. Either a company has to stay small because it cannot raise tries such as aero space and pharm a c e u t icals, dominated by large the finance, or – as in the case of Gremlin and Inner Workings – it co m panies, in which the sta te plays a significant role thr ough subsidies
leaps too far too fast to a more aggressive form of financing. The or price regulation, to industries such as information technology and Knowledge Bank would help to fill in this missing step in the electronics, which are newer and more entrepreneurial and where the funding process by “topping-up” angel inve s tments in high-risk new state has a much more limited role. The department also attempts to
technology ventures. This would help companies to grow steadily. bring together different, often incompatible, roles and cultures. One ● Pro m o t e the public sector’s use of the prod u c ts of in n o vative small role is as a Whitehall policy maker covering a wide range of business companies. The Knowledge Bank would help open up the public related fields. A second is to help animate British business by deliver-
sec tor market place to innovative companies, so that these compa- ing business support thr ough publicl y funded schemes. A thi r d is as an nies could use the public sector’s sta m p of ap p r oval to seek market s independent arbiter of business regulations, for example, on company elsewhere. la w and consumer legislation. A fou r th is to act as an inve s tor in its own ● Run a National Business Plan competition, a kind of Booker prize right in the science base. for business, in which school children, students and adult entre- The outcome of this ill-coordinated clutter of activities and confus- p re n e u rs could comp e te for prizes. The winners would re c e i v e ing roles is predictable. The department lacks a clear sense of purpose
and rationale. It is constantly haunted by the shadow of the Treasury,
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Surfing the Long Wave Knowledge entrepreneurship policies
which is the real master of economic policy and the Department for opportunity. An alternative would be for these statements to be drawn Education and Employment, which has a much bigger budget and a up by a Select Committee of the House of Commons. sense of real power. Sectoral policy issues – for instance covering coal subsidies or aero-
The DTI suffers from a paucity of ambition and imagination: it runs space launch aid – could be covered by teams within the Treasury, sc o res of small, marginal schemes tha t gen e ra l l y invol ve only a few ten s combining industry experts drawn from the old DTI and fiscal policy of millions of pounds. These schemes do little harm but as a result it experts from within the Treasury. is also difficult to measure the value they add. The DTI lacks any kind Three areas of policy making would not fall within the Enterprise of dynamic, entrepreneurial and innovative drive. That may be defen- Division. First, it would make sense to create a single policy making sible in its role as a policy-maker and regulator but not in its business department to shadow Ofcom, the single regulator for broadcasting, s u p p ort act i vities. In short the DTI, which emp l oys about 9,000 people, communications and the media created by the 2001 Communications is in dire need of a far-reaching shake-up. Bill. This could be achi e ved by integ rating the DTI departments dealing The D TI should be de-merged into three distinct organisations, each w ith the media and communic ations into the act i vities of th e focused on a specific role: policy, business support and regulation. In De p a r tment of Cu l t u r e Media and Sport thus making this small depart- the process, over a long period of time, the number of people empl o yed ment more substantial. This would include ove r sight of the Pos t Office . by the DTI should be signif icantly reduced. This is how the de-merger Second, the DTI’ s resp o n s i b i l i ty for empl o yment legislation, trai n i n g would work. and industrial re l ations would pass to the larger Department for Education and Employment to allow it to develop a more integrated Policy making ap p ro a c h to education and training from school into work. In effec t the
The most important policy issues at the DTI revolve around how fiscal DfEE would become the Ministry of Human Capital and Talent. policy should be used to promote innovation, entrepreneurship and Third, the DTI’s environmental work should become the business growth. Whenever the DTI comes up with a proposal for tax incentives facing division of the envi ronmental arm of the Department for for business it has to get Treasury approval. There is often huge dupli- Environment, Farming and Rural Affairs. cation of effort in attempting to agree a common set of objectives and Even if this shake-up of policy-making functions is rejected, in part measures for policy. A more sensible approach would be to expand the because it could centralise too much power in the Treasury, there is a
Treasury’s Innovation and Growth Unit to form an Enterprise Division po wer ful case for much tighter coordi n a tion between the Trea s u r y and at the Tr ea s u r y tha t would take over most of the policy fun ctions of the DTI on policy issues. DTI and provide a much closer link between industrial and fi s c a l policy. Industrial and business thinking would be integrated into the Business support he a r t of the Trea s u r y rather than having to go via the much wea k er DTI. The DTI’ s business support acti v ities should be taken out of Wh i teh a l l ’ s The Tr e a s u ry ’s Ente r p rise Division would ov e rsee all fiscal policy b u re a u c rat ic, analy t ic and policy-making culture. Business support making in relation to business. needs to be delivered in a far more dynamic, entrepreneurial, perfor- In addition the Enterprise Division could house a cross-departmen- mance driven and business-like culture. All the schemes the DTI runs tal Ent repreneurship Unit to examine the impact of different policies, to help British business should be turned over to a Business Services enacted by different agencies and departments, on entrepreneurship. Agency (BSA), which would be able to set new pay scales, attract talent One possibili ty would be for this Entrepreneurship Unit to publish a from the private sector and create new methods of working. s e ries of e n tre p re n e u rship imp a ct st atements assessing the like ly impact of regulations and policies on entrepreneurial capacity and
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Surfing the Long Wave Knowledge entrepreneurship policies
The BSA would be the umbrella for five agencies, each focused on A new framework for policy specifi c markets, needs and targets and run by management teams A more systematic and coherent approach to entrepreneurship policy recruit ed for the task. needs four main ingredients. It needs to: ● In addition to the Small Business Service and the Knowledge Bank, (i) Build up the supply side of the entrepreneurial economy: the the BSA would include: en t rep re n e u r ial capacity and disti n ctive know-h o w needed to form knowledge-based businesses. ● ● The British Business Age ncy to handle inward inv e stment and (ii) Open up market opportu n i ties thr ough a market -c re a ting compe - external trade promotion, including the Invest in Britain Bureau tition policy, in the public as much as the private sector. and the Trade Partners scheme. ● (iii) Fund interm e d i a r ies, facilita tors and network s to help mobilise ● The Science and Innovation Agency would take in all the activities resources around entrepreneurs. of the Office of Science and Technology as well as all the DTI’s ● (iv) Prom o t e entrep re n e u r ship in regions and among groups of the cu r rent spending on innovation. The Science and Innovation Agen cy population where entrepreneurship is less developed.
would drive returns from investment in the science base through sc hemes such as Uni v e rs i ty Challenge and Entrep re n e u r ship Centres Resp o n s i b i l i ty for developing and pursuing this fram e work would res t at universities. w ith the Entre p re n e u rship Un it working within the Tre a s u ry ’s ● The Regional Economic Development Agency would take responsi- Enterprise Division. We briefly outline how policy might develop in b i l ity for coord i n ating the work of the Regional Dev e l o p m e n t each of these area. Autho rities as well as the Regional Selective Assistance budget and
all the DTI’ s local business support schemes such as Business Links. (i) The supply side: entrepreneurial capacity Br itain needs a system at i c policy to crea te a broa d l y spr ead capacity for The Business Regulationgency A e n tre p re n e u rship, st a rting with education and young people and
Pol i cy making invol ves a keen sense of po l it i cal prio rities. Effec tive busi- extending to include older workers, mothers returning to work, family ness suppo rt requires a business-like and performance-driven culture businesses and entrepreneurship among recent immigrants. in whic h agencies can work very closely with their clients. Regulation ● on the other hand thr ives in an atm o sp h e r e of rig o rous independence . Basic education.It will be near impossible to succeed in the knowl- Regula tors need to be able to stand back from the demands of politi- edge-driven economy without high standards in the basics of liter- cians, producers and vested interests. That is why the DTI’s regulatory ac y and numerac y across the entire population. But in a more entre- responsibilities should be spun out into a new and politically inde- preneurial economy the content of education will have to change pendent Business Regulation Agency covering company law, mergers as well. Children in junior and secondary schools need to engage and acquisitions, consumer regulation and competition policy. in creat i v ity, prob l e m -s o l ving and tea m w ork, all key capabilities for
The DTI de-m e r g er would not trig g er a surge in entrep re n e u r ial acti v - the new economy. A much larger portion of the school curriculum ity. Ho wever it would be a sign of the government’s commitment to needs to be devot ed to focused, crea tive proj e c t work, in which chi l - innovat e to keep pace with change in the economy. The reorganisation dren have to work flexibly in teams. As well as studying for exams would improve the quality and effectiveness of policy-making; make a child should develop a sense of moving from project to project business support more focused and driven; and crea te a rig o rou s l y inde- across their school career, building up skills and learning how to pendent approa c h to business reg u l a tion, all of wh i ch would be useful . manage their own work and ideas.
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Surfing the Long Wave Knowledge entrepreneurship policies
S chools should be enc o u ra ged to experiment with diffe re n t The cream of the mobile, educated young global work f orce is being approaches to blur the lines between formal education, work expe- at tra cted to the US and the We st Coast in part ic u l a r, not just rience and entrepreneurship. Possibilities include: allowing some because the rewards are so lucrative but because US society is in
small businesses that have educational aspects to their work – for ma n y ways more open and cosmopolitan. In a knowl e d g e economy, e xa mple video pro d u ction facilities – to rent space on sch o o l in which human capital and talent are critical, immigration policy premises in exchange for providing kids with lessons; allowing needs to be seen, in part, as an arm of i n d u strial policy. One
schools to start their own small businesses, for example making measurable aim of policy should be to target and attract interna- computers for parents or providing services for local businesses. tionally mobile talent in key sectors of the economy to strengthen B rit a i n’s position in areas like mobile te l e c o m m u n ic ations and ● Higher education.Expanding access to higher education matters not biotechnology. just because young people may learn important skills but because they also learn independence, incubate ideas and form a more self- Successful businesses are built on distinctive know-how. We need to
confident sense of themselves as autonomous individuals, all key invest more in research and development, both in universities and in g redients in entrep re n e u r ship. Education broadens people’s hori- c o mpanies, and ge n e rate a higher re t u rn from th at inv e st m e n t . zons and enco u ra g es mobility. Uni v e rs i ties can crea te an innovati v e Investment in the science base, both public and private, needs to be
atmosphere simply by bringing young people together. That is why matched by measures to ease the flow of ideas into the rest of the universi ty towns are often the spawning grounds for cultural busi- ec o n o m y. Measures such as the Uni v e rs i ty Challenge Fund, the creat i o n nesses in fashion, design and music. There is growing intere s t in the of Entrepreneurship Centres and the links the government is helping
formal tea c hing of en t rep re n e u r ship at universi ties. Seven Scottish to forge between universities and large businesses need to be spread to un iv e rs i ties offer modules in entrep re n e u r ship to students in eve r y many more universities, especially in areas of relative economic depri- facult y. In future every student should be able to opt-in to a course vation.
in ent repreneurship and self-employment, no matter what degree Valuable disti n ctive knowl e d g e is often not formal, scientific or tec h- they are studying. In some disciplines, such as engineering and ni cal but crea tive, cultural and craf t based. Cooker y, design, music, fil m , sc i e n ces, entrep re n e u r ship modules, invol ving a good deal of pra c - fashion and games are increasingly important parts of the economy.
tical work on business plan projects, should be compulsory. Education needs to pay greater attention to building creative and craft skills, for example, through specialist schools and curricula. ● Business education.We need to create a much broader range of busi-
ness qualifications and courses delivered by a wider range of insti- (ii) Opportunities for entrepreneurs tutions. Many people find the idea of s itting for a Maste rs in One theme of po l i cy should be to enhance people’s capacity to sense and Business Adm i n i s tration daunting and expensive. One option wou l d then articulate opportunities. Business plan competitions, in which
be to encourage the creation of Community Business Schools that people of all ages can conceive and develop ideas, should become a could tea c h a ran g e of sh o rt courses to people at work in a local busi- national pastime. Only through practical work on projects that matter ness. Business skills are not the pres e r ve of a manager ial elite; the y to them will people develop skills to seek, scan and select promising
need to be spread far more widely in the population. opportunities. Many young people might be inspired to start their own business by ● At t racting a t l e n t . B ritain needs to match the US as an at tra ct i v e ex p o s u r e to successful older entrep re n e u r s. One possibility would be to
meeting place for entrepreneurial talent from around the world. run a Entrep re n e u r ship Scho l a r ship Prog ramme for eighteen to 21 yea r
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Surfing the Long Wave Knowledge entrepreneurship policies
olds to allow them to develop an idea for a business by visiting the US National Business Plan competition would be a vast annual showcase or by w orking alongside a successful British-based entrepreneur. for entrep re n e u r ial talent and ideas, which would not just highlight the Markets that are open to new entrants with new ideas will encour- value of en t rep re n e u r ship but also in the process crea te a string of rea l age people to see new opportunities. If markets are closed to new businesses and jobs. entrants by regulation or monopoly power then there will be only a li m i ted sense of op p o rtu n i ty. The case for a rig o rous compe t i tion policy (iii) Mobilising resources to pro m o te new entrants is not th at dere g u l ation lowe rs costs for co n s u m e r s but tha t it enhances opportu n i ties for entrep re n e u r ship. The ● Networks and clusters need fo r tough competition policy applies as much to services, profes- Modern entrepreneurs are sustained by networks and clusters. Can sions and the public sector as to traditional industrial sectors. In the policy-makers help to promote an innovative capacity within clusters, pu b l i c sector, the goal should be to open opportu n i ties for new entran t s to give them a life, possibly stret ching over seve r al waves of tec hnology? thus making public sector markets far more contes table. The thre a t tha t The answer is yes, but only if public policy is designed intelligently. a new entrant might come in with a much better way to deliver the C l u ste rs and networ ks, when th ey work well, are too fluid to be council tax or a better way to offer patients hospital appointments amenable to direc t public management. However cluster s need “public should help spur public sector incumbents to improve their perfor- goods” to sustain them: shared infra stru ct u re, facilities, res o u rc e s , mance. meeting places. There is a role for thi r d parties, interm e d i a r ies, broke rs , L a r g er markets tend to breed larger opport u n ities. In the US a facilitators and networkers who help to make links between different company that has a hit in its domestic market is likely to have a very companies and bring them together. One role for public policy is to large hit. Success in the US market so often can be the basis for inter- ma k e sure this kind of ne t w orking and brid g e building takes place. That national expansion. In Europe, despite the single market programme does not mean public bodies should undertake this role; simply that and moves towards harmonisation, markets are often still nationally the y could fund or facilita te it. Cluster s which lack such interm e d i a ri e s defined. As a result entrepreneurs see smaller opportunities and build or “collective res o u r ces for compe t i tion” may be held back. While some smaller businesses. of these shared resources can be created by private companies, for Entr epreneurs are not just good at sensing an opportunity, they can example galleries and bars, some resources, such as finance and work- assess and articulate its potential to investors and partners who might space, might require more concerted policy focus. back the project. Central to this is the skill of creating and presenting Different clusters have different needs. No single set of policy tools a business plan. These skills should become widely spr ead thr ough basic is applicable to all cluster s. Science -based cluster s, for exam ple, are rel a - education. Writing business plans should become a national pastime. tively amenable to direct public policy interventions through invest- To promote it the government, with the backing of venture capitalists ment in the scientific knowl e d g e base, the crea tion of sc i e n ce parks and and the inv e stment community, should cre ate a National Business schemes to transfer knowledge out of universities into nearby compa-
Plan com p e t ition – a kind of B o o ker prize for entre p re n e u rs. The nies. Technology clusters, like the Thames Valley corridor that rely National Business Plan competition would operate annual regional heavily on large multinational companies can be promoted partly by co mp e ti tions run by Regional Development Auth o rities with categ o rie s inward investment schemes to attract global software companies and for school chi l d r en, students and adult entrep re n e u r s, including priz e s the provision of a sound infrastructure. However clusters such as the for ent repreneurs over the age of 50 and women. The winners of the Hoxton new media triangle in London, which are not based on insti- regional compe t i tions would go forwa r d to a national final. The nati o n a l tutions, formal knowl e d g e or large companies, are far less amenable to final winners would be given support to take their plan forward. The
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Surfing the Long Wave Knowledge entrepreneurship policies
di re c t policy inter vention. In Hoxt on the lack of di re c t policy was a crit- thriving and has helped to spawn TIGA, The Independent Games ical fac tor in the area’s growth. Alliance across the UK. Different policies are needed at different stages of a cluster’s devel- ● opment. At the early stages a cluster is more likely to grow if compa- Finance nies wi th similar skills and markets can be brought together to gener- (i) Micro-fundingThe family will be an important source of entrepre- ate momentum. Howeve r , as a cluster develops its continued growt h will ne u r ial fin a n ce. Many small businesses in the UK sta r t around a kitche n depend on diversifying the kinds of companies in the area, to bring in table or in a bedroom. In the US many small businesses start with an new ideas, talent and technologies. in i tial inve s tment from a close rel a tive. One possibility would be to give Culture matters as much if not more than infrastructure and insti- tax advantages for one family member to invest in a business being tutions. Dynamic clusters need an entrepreneurial, expansive, risk- created by another. This might particularly help ethnic minority busi- taking culture in which new firms are being created and large compa- nesses which are more likel y to rel y upon informal and familial source s nies are spinning out smaller companies. All clusters need entrepre- of capital. A further idea would be to introduce a nil-rate tax band for neurial role models and success stories to motivate those who follow, micro-business run from home in the first two years of their life when as well as access to appropriate kinds of finance and venture advice to they are most vulnerable to cashflow problems. help build businesses.
C l u s te rs cannot be pro m o ted from Whitehall. They can only be (ii) Angel-plusi n fa n c e The Knowl e d g e Bank would fill the “angel plus” gap nurtured very close to the ground. This is one reason why many DTI in financing growth companies. However the absence of debt finance resp o n s i b i l i ties for business support need to be devol ved to regions and for high-tech and knowledge-based businesses means they are heavily cities. dependent upon equi ty inve s tment from venture capita l i s ts. US banks, Those cluster creating policies should include: in contrast, have innovated a range of new products to allow them to lend to high-tech companies. In the UK only HSBC has a dedicated ● Creating business incubators in most cities and major towns, to national high-tech lending team. British banks should be encouraged prov ide companies with managed workspace and easy access to a to learn lessons from the US experience. ran g e of business services, accountants, legal services, managem e n t
and marketing expertise. In the US young businesses are supported (iii) Ven t u r e capital Ven t u r e capital should become a mainstream acti v ity. by a much larger and broader base of business angel investors. Gov e r nment measures outlined in the Myners Re p ort on fi n a nc i a l Incuba tors can play a critical role to make good the relative weak- markets and pension funds should lead to significantly higher invest-
ness of a n gel inv e stors in the UK. Every significant town and ment by pension funds in venture capital funds. That in turn should universi ty in the UK should have at least one business incubator allow funds to be larger, develop more diversified portfolios and take wit hin the next five years. a longer- te r m vie w on their inve s tments. A gen u i n e l y European venture ● Pr omoting peer-t o-peer learning and clubs among entrep re n e u r s to ca p i tal industry will develop only with a single, larger fin a n cial market help them develop projects. Although the First Tuesday business that will allow investors to diversify risks. club has passed its peak, these clubs are still very popular and more
ar e being crea ted. These clubs might be focused around a set of di s c i - One of the biggest constraints on growth businesses is the dearth of plines: for exam ple, a cultural entrep re n e u r s club has been crea ted effective managerial talent to work alongside young entrepreneurs. at the Institute of Contemporary Arts in London and a sister club Three initiatives would help to overcome this problem. The Knowledge
is being founded in Glasgow. The Scottish Games Alliance is still Bank would act as a broker, bringing together managers from large
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Surfing the Long Wave Knowledge entrepreneurship policies
● companies and small companies that needed their expertise. Policy Regions changes could make it more attractive for an experienced executive to Entrepreneurship is heavily biased towards the south-east of the UK join a start-up. Although British stock option laws have been relaxed wh e r e the majo rity of businesses are crea ted. That is in part because the they are still considerably more onerous and complicated than in the south-east is the richest regional economy and the centre for venture US, in large part to prevent their abuse by executives of large compa- funding. Government policy should focus wherever possible on build- nies. We should make it easier for large companies to “lease” out ing up the entrep re n e u r ial capacity of ot her regions where dependence managers to smaller companies. This “lend-lease” scheme for manage- upon manufacturing industries and large companies has been one rial talent would allow large companies to give managers an opportu- factor in limiting entrepreneurial activity. The government sponsored nity to join a start-up for up to two years without losing the executive regional venture capital funds will start to redress the balance but altogether . fur ther measures will be needed to make it easier for businesses to rai s e money from the region where they are based. Policies to promote clus- (iv) An inclusive approach ters and networks should be biased towards regions with relatively low
Entrepreneurship policy must not be designed simply for an entrepre- rates of business start-up. neurial elite, many of whom probably have skills, contacts and money of their own to start a business. Policy should be designed to promote entrepreneurship across all sectors of society. It should be inclusive, socially and regionally.
● Social promotion of entrepreneurship Entrepreneurs tend to be aged 25 to 44 years old. The larger the share of the population in this age group, the more entrepreneurs a society is like ly to cre ate. An ageing society faces part icular problems in pr omoting entrep re n e u r ship. This is an area where novel public policy approaches could pay dividends, for instance to create business clubs for entr e p re n e u rs who are more than 50 ye a rs old. Inc reasing th e participation rate of people over the age of 50 in entrepreneurship should be one measurable target of policy.
Entr epreneurs tend to be male. To expand the population of entre- preneurs, British programmes must get more women involved, which means attacking the prejudices that make it especially difficult for women to form their own businesses. (UK women sta r t around half the number of businesses of an equivalent number of US women.) The government should launch a series of initiatives aimed at increasing markedly the participation rate of women in entrepreneurship. One possibili ty would be to launch programmes modelled on the Wellpark p ro gramme in Scotland which offe rs dedic ated facilities with low rents, and on site childcare for women entrepreneurs.
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Appendix
Danny Chapchal, Cambridge Display Technologies CDT was founded by Cambridge University Profressor Richard Friend, to exploit his discove r y tha t light-em i tting plasti c could be used to make
Appendix thin flat screens. Danny Chapchal was chief executive in 1998-99.
Main companies and entrepreneurs interviewed Peter Florence, Radioscape
Radioscape is one of Br ita i n ’s most prol i f ic radio tec hnology compa n i e s . It has developed a wide range of tools and products to speed the devel- opment of so ft w a r e defined, digital radio tha t could not only widen use
of digital radio but also provide a competitor to new generations of mobile telephone. Robin Saxby, Chief Executive, ARM
ARM is one of the most successful high-tech companies ever created in Brent Hooberman, LastMinute.com the UK. A spin off from Acorn Computers, ARM designs the low-energy Lastminute.com was synonymous with the dot.com boom of the late consumption core to semi-conductors that are mainly used in mobile 1990s. The firm started by Hooberman and his colleague Martha Lane telephones. By 2001, about eight yea r s after is fou n d a tion, ARM was the Fox was floated on the London Stock Market in early 2000 on a wave of biggest semi-conductor maker in the world. publicity only to see its share price slump.
Edwin Moses, Chief Executive, Oxford Asymmetry Tony Rowland and Robert Norton, ClickMango O x ford Asym m e try specialises in making complex compounds for ClickMango, the alternative health site, was one of the early casualties re s e a rch by pharm a c e u t icals companies. Moses joined when th e of the dot.com crash. company had only a handful of employees. In the course of the study the com pa n y was sold to Evol ve, a German biotec h group for more tha n Tim Carrigan, NoHo Digital £300 million. NoHo Digital was one of L o n d o n’s fi rst fu l ly fl e d ged multimedia
production companies, which started through a partnership between Paul Dr ayson, Chief Executive,owderJect P Carrigan, a former journalist and a creative team from the BBC. It Powerject has patented a new technique for delivering medicines in survived through a series of financial booms and slumps before being powder form which removes the need for an injection. The technique sold to WPP, the advertising agency. was invented by Professor Brian Bellhouse from Oxford University. Rowan Douglas, WIRE
Andrew Rickman, Chief Executive, Bookham Technologies Rowan Douglas was 23 when he created WIRE in 1994 to deliver infor- Bookham makes optical components for telecommunications switches mation from the internet to insurance and reinsurance companies. to enhance their ability to tra n s m it high speed data. At one st a ge WIRE subsequ e n t ly developed a series of i n s u ra nce pro d u cts and worth more than $1 billion, the company was worth more than $500 trading systems before it was sold to one of the world’s leading insur- million at the start of 2001. a nce broke r s, Willis, in late 2000. Douglas and his executive te a m joined Willis to develop WIRE within its overall e-business strategy.
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Surfing the Long Wave Appendix
Roy Stringer, Creative Director, Amaze Dave Sproxton, Managing Director, Aardman Animations Amaze is a leading inte rnet and dist a nce learning systems design Dave Sproxton was one of the founders of Aardman Animations, whic company based in Liverpool. Amaze was created on the basis of tech- has become of the most successful animation companies in the UK in nology developed at Liverpool University. recent times, making Chicken Run and the Wallace and Gromit series.
Steven Bowbrick, Funmail/Another.com Jerry Hibbert, Hibbert Ralph Animation
Steve Bo wb r ick founded WebMedia which in the mid-1990s was London’s H i b b e rt Ralph is one of the longe st established British animat i o n leading web design and services comp a ny. WebMedia was such an companies with a base in London’s Soho. early web pioneer that it went bust before the dot.com wave had even appeared. Bowbrick went on to form Funmail with his backer Joel John Carey, John Carey Films Kerner . John Carey, also based in Soho, is one of the most successful British animators over the last two decades.
Nick Denton, Chief Executive, Moreover Denton is a former FT journalist who formed Moreover with software Peter Molyneux, Founder, Lionhead Studios specialist Angus Banks in 1997-98. Moreover was originally conceived Molyneux is one of Britain’s most successful computer games entre- as a tool for users to create their own internet news services but it has preneurs. An early game of his, Populous, became one of the most since become a business intelligence tool. su c c e s s f ul games of all time. His fir st games compa n y, Bullfrog, was sold to Infog rames of Fran ce. He went on to sta r t a new compa n y, Lionhead,
Daljit Singh, Creative Director, Digit to make a new generation of computer games such as Black & White. Daljit Singh created Digit with his business partner Andy Chambers after lea ving IBM. Digit has since gone on to become one of London’s Lesley Keen, Inner Workings leading web design companies, winning Design of the Year aw a rd Le s l e y Keen was one of the few successful women entrep re n e u r s in the from Design Magazine. games and multimedia business. However, in the course of this study Inner Workings folded after running out of money for further games
Simon Waterfall, Creative Director, Deepend development. Simon Water fall crea ted Deepend with some colleagues from the Roya l College of Art in the mid-1990s. Waterfall is the creative director while Chris van der Kuyl, VIS Interactive
G a ry Loc k wood provides the business drive behind the business. C h ris van der Kuyl is one of the best known and most ambit i o u s Deepend has offices in seven countries. computer games entrepreneurs in Scotland and with others has been res ponsible for building up a games cluster in Dundee and Dunferm l i n e .
Jez San, Founder, Argonaut Software Jez San wrote his first hit computer game in his bedroom while still at school. He went on to create Argonaut Software, one of the UK’s most s u c c e s s ful games dev e l o p e rs. In the process San also cre ated ARC , which designs semi-conductors for games consoles. ARC was spun off as a separ ate business and listed on the stock market.
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