Mitigating the risks of Brexit for your tech startup

It took Theresa May eighteen months to reach a deal with the EU, but it Parliament less than a month to throw it out by a wide margin, most MPs believing that her imperfect compromise is worse than the status quo. The paralysis is such that the government has largely given up arguing that its deal will be good for the country, instead insisting that it is what democracy demands.

May’s ‘progress’ in negotiations has been a pantomime of democracy. Neverendum. The risk is real. Britain faces years of trade negotiations with the EU, involving more painful trade-offs between prosperity and control. All the while, the country will be falling further behind its potential.

Voters were swept off their feet by the promises of the Leave campaign, only to discover that the future relationship was that promised. Those with long-standing delusions about what Brexit would mean have been forced to swallow a dose of reality. It’s chaotic. May has appointed her third Brexit secretary as her own backbenchers are feverishly plotting to bring her down. Labour’s position is hopelessly unclear.

With negotiating time almost up, Britain has the imperfect deal that it was always going to get. Promises of having cake and eating it have given way to a less appetising offering. Yet among Brexiteers, one hopeful fantasy lives on: the idea that, if all else fails, Britain can prosper outside the EU without signing a deal at all.

If May wonders how this dire outcome has come to be more popular than her deal, she should start by re-reading her own speeches. Her mantra that ‘no deal is better than a bad deal’ was supposed to persuade the EU to give Britain better terms. It didn’t work. But it struck a chord at home.

The draft withdrawal agreement of 585 pages will guide future talks. Will we agree a Norway-style relationship or a deal modelled on Switzerland or Canada? In truth the EU27 will be in control, with Britain having few cards to play, and the process of ratifying a deal with Britain will be tortuous.

What we do know, is that the ongoing uncertainty and rhetoric of Brexit heading into 2019 will create volatility in sentiment, confidence, investment decisions and currencies, that will influence both business and consumer spending and buying power. So how will this impact tech startups?

Whether you’re a Eurosceptic or a Europhile, the UK startup environment has a supportive investor tax regime, a good intellectual property regulations and amazing talent from across Europe, but there are challenges ahead created by Brexit.

Everyone is looking for the headline that everything is fine or everything is catastrophic, and actually it’s somewhere in-between. At a high level, the potential winners will include those startups that are exporters, whilst potential losers are importers and foreign workers in the UK.

While Brexit is a ground-breaking event in the history of Europe, geopolitics, and global economy, modern agile companies have long ago surpassed the constraints of state borders and work permits. However, lets’ look at four key challenges from Brexit for tech startups, and mitigation strategies

Workforce

It’s already tough to hire good developers and engineers. While UK tech startups do create jobs for British citizens, part of the skills shortage has been filled by European immigration. We could potentially lose a large part of the startup workforce if regulations make it tough for EU nationals to stay in the UK.

Around one in five tech workers in the UK are from the EU. It’s likely that the current freedom of movement that allows EU citizens to work in the UK with few limitations will come to an end after Brexit. That’s going to make it harder to attract staff from the EU, and to keep workers who are already here.

Talent is the life blood of start-ups. You cannot build a startup if you cannot attract the best talent. While Brexit could be frustrating we might have a larger talent pool to choose from – a lack of European migrants doesn’t necessarily mean a complete migration halt. Brexit will open doors to non-EU countries, and whilst overseas talent is important, we have to invest more in terms of home-grown talent too.

Finance

The adjustments the financial services industry must undertake arguably pose a bigger challenge than the immediate geo-political uncertainty casting a shadow over the labour market to startups.

Startups looking for additional funding or support may have a harder time when pitching, but there are still plenty of options for growth.  While UK investors are cautious, EU investors are taking advantage to promote their own economic stability. This may mean a drift to Berlin and other cities offering greater entrepreneurial incentives.

As the UK exits Europe, businesses will lose access to funds that come directly from EU membership. The European Investment Bank, for example, has invested over €31.3bn in the UK economy of which 17% funded innovation and SMEs. In the tech and life sciences sector, the European Investment Fund is a key source of finance, supporting 27,700 SMEs.

A weakened pound and higher inflation after the final Brexit terms are agreed could lead to higher costs. A holistic view thus gives a perspective of many uncertainties arising from Brexit regarding finance for startups.

Regulatory environment

Services make up about 80% of the UK’s tech exports, and the EU is its biggest export market, however, the UK Government is more focused on trade in physical goods. Without even a vague plan in place, tech companies can’t be sure about the rules that will govern trade. That means, for example, they could end up being required to comply with two sets of regulations – one to sell in the UK, one to sell in Europe – with different VAT and thus cashflow implications.

Another area of concern is data protection. Data of all sorts flows to, from and through the UK as a part of daily life, everything from IoT devices to cloud computing, and all of this data is currently governed by EU law. After Brexit, a new deal on data protection is needed otherwise those data flows could be disrupted or even stopped, with predictably chaotic consequences.

Market access

The UK has traditionally traded extensively with Europe, and access to European markets is crucial, it’s a two-way trade. Although many startups are still moving forward with their plans for Europe, loss of Single Market access could be damaging, so startups need to be looking at other parts of the world, which might be more financially viable.

Across the tech industry the picture is mixed. Those tech companies that mostly deal with US customers or suppliers are largely unaffected by Brexit, and if a mooted UK-US trade deal happens these companies may even see significant benefits. However, uncertainty on both demand and supply side is currently impacting many startups.

What can tech startups do?

The key to surviving the Brexit haze is flexibility and contingency planning as new rules are created. In the current uncertainty it can be difficult to plan, but that’s exactly what you need to do. It’s the act of planning, rather than the plan itself, which is the key. Robust, well-thought out business plans, showing that you’ve calculated upside and downside scenarios, will be crucial.

Whilst it can seem that every time you hear the news or open a newspaper, there’s more reason not to act, the fact is that if you have an innovative idea, the experience to see it through and the ability to make a robust business case for it, the UK remains one of the world’s most favourable environments for start-ups.

So what should a startup tech company be doing right now, with only a little information to guide them? It appears the advice, in classic British style, is a modified version of keep ‘calm and carry on’.

On one hand, startups are probably the most equipped to navigate whatever is yet to come, being adaptable, innovative, and nimble in their mindset. Every day brings with it a new challenge that small business owners never thought they would have to deal with.

On the other hand, entrepreneurs often have the least amount of experience and resources. Then there’s the emotional side of it. I have heard many entrepreneurs talking about the uncertainty of Brexit and saying they don’t need an additional gamble at the moment.

So here are some thoughts on how to navigate the future, pending our exit in March.

1. Understand your runway, and create a clear plan

The place to start is your current plan – and don’t create one of those fake plans aimed at investors, that won’t help you, craft a plan for YOU with realistic assumptions and meaningful goals.

Make a decision based on cash runway and velocity. Make decisions based on a new plan, not based on the plan you had before. This is probably the toughest thing you’d need to do as a founder, but there are times where you need to do it. Do it sooner rather than later, do it with respect, and ensure there is a balance of optimism and realism – hope is not a strategy.

2. Financial targets – be scrappy

First is the cash in the bank, and the second is the cash you expect to get from your customers. How certain are you in your revenue forecasts? Look at the number of customers, pricing, volumes you know are confirmed, and you sales funnel, pipeline and lead conversion times.

In general, switch into a scrappy mode, embrace that mentality. Review your costs – what can you cut? There is always extra stuff. Just get into the mode of cutting things that aren’t critical – activities that don’t add value to customers.

3. Review your hiring

Review your hiring plan. This is easy to control in times of uncertainty and whilst it means that you will grow slower, and the current team will have to do more work, it keeps fixed costs and demand on management time on hold.

Whilst I’m an advocate of continuous recruitment in terms of always being active in the market rather than seeking to hire for a specific role at a specific time, taking a three-month recruitment sabbatical at times of heightened uncertainty takes the pressure off making what are high-risk decisions.

4. Get customers faster and for longer

This may sound odd, because why wouldn’t you close customers faster anyway? The point is, think about friction points, anything that slows down your sales? Think about offering a price incentive for an annual payment versus monthly payments, and offer different price structures for longer contracts.

“‘Uncertainty’ and ‘opportunity’ are the two words I most closely associate with Brexit. However, on the back of uncertainty rides opportunity, which is where genuine entrepreneurs thrive. Now is not the time to hunker down on innovation, build rapport and relationships with new and existing customers alike with renewed zest.

Next steps…

At Disney, the shared understanding is that ‘nothing hurts the mouse’ – risk assessment and management is a key leadership focus, and so it should be for startups.

Precisely quantifying Brexit vulnerability is impossible, but that doesn’t mean you can’t reduce uncertainty. The goal is to develop ways of understanding key drivers and possibilities so that surprises aren’t so surprising. You have to hedge your bets, don’t put all your eggs in one basket and reduce decision making on the fly – take steps to minimise potential damage long before a crisis unfolds.

Many of the details of the policy and regulatory issues remain very unclear, but recent endorsements from tech giants Apple, Google and Facebook demonstrated that the UK is still an attractive location for tech business.

So, be steadfast in your resolve. Don’t take a wait-and-see approach, relying on being nimble to respond to however Brexit turns out, waiting for Brexit isn’t an option. Look at the four potential levers highlighted above – runway, finances, hiring and customers – and start making your plans today.

Brexit and the oxymoron of political leadership: why should anyone be led by you?

On a recent Friday morning, I awoke shocked like many to find that UK electorate had chosen to exit the EU. As an advocate of Remain, I am still struggling to come to terms with the idea of a ‘divorce’ from what I regard to be a positive relationship with our fellow Europeans on social and economic issues. On the surface, Brexit has all the flavours ranging from nostalgia of self-rule to xenophobia.

Some have attributed Brexit to a political error by Cameron in holding a referendum, poor management of migration policy by the EU and downright misjudgement on how inflammable the issue of migration into the UK has become, such that it became the single-decision issue for most Leave voters.

It is worth reflecting on what caused this surprise result and what we can learn from it from a leadership perspective, as for me, the leadership vacuum on both sides of the debate is my overriding takeaway. As a consequence, the subsequent fall-out from the leading voices in both the Remain and Leave campaigns has left us with some dramatic short-term adverse and unexpected challenges.

The fallout is huge. The Prime Minister resigned with haste and no obvious successor, and the Leave campaign leadership exited themselves with equal undue haste, opting to save their own skins. Multiple Tories crept out of the woodwork murmuring their leadership credentials, whilst the Shadow Cabinet is in open revolt in an effort to oust Corbyn, struggling to survive a coup yet stating he’s under no pressure.

Meanwhile, the ‘rerun the referendum petition’ reached over four million signatures seemingly overnight, and the pound hit a 31-year low against the dollar. And there is talk in Scotland and Wales of total secession. It has been a painful experience to watch events unfurl on such a seismic scale, the like of which we have never seen before.

In business, when something happens of such significance – loss of a major customer or project, a strategic shift in the market, or a factory closure and a round of redundancies, we expect a clear sense of authority and direction to be communicated by the leadership. Someone steps up and reassures us that all will be well, and that this moment, like others before it, will pass. Heads come up, we face the challenge, we adapt, shrug our shoulders and move on.

In the case of Brexit, weeks after a vote demanding a significant change of direction, there remains a total leadership void. Precisely no one has stepped up. Neither side advocating their point of view had a clear game plan in the event of victory or defeat.

If you take one constructive lesson from Brexit, it is a stark reminder of the absolute imperative of genuine leadership. The political turmoil of the last few weeks offers many lessons about how to fail and succeed as a leader. Here are my thoughts on the leadership takeaways from the referendum.

Focus on your people first and second It is clear the Remain leaders failed to create engagement, and build trust. Employee engagement is one of the defining issues in current management debate. With the impact of the millennial generation joining the workforce, more people are simply showing up to pick up a paycheck, while their passion for the business and commitment has waned. They are cynical about business and are more focused on ‘what’s in it for me?’

To turn around these attitudes, business leaders need to stop trying to please their investors, who will never be satisfied, no matter how strong the results, and engage and inspire their people. They should invest in them through training, creative and flexible benefits packages, and create an empowering culture.

Business leaders who ignore their co-workers’ emotions and sentiment do so at their peril. Discontented employees lead to disengaged, fractured workplaces, poor customer experience and consequently mediocre results. The lack of engagement delivered by the Remain campaign showed in the results.

Spend face-to-face time with customers There is no greater place for learning what is going on in your business than being in the marketplace with customers. Leaders who apply all five senses to customer interactions learn more first-hand than they do from reading reports or looking at PowerPoint presentations.

When he became CEO of Unilever, Paul Polman asked his leaders ten questions to see how much time they were spending with customers. Their responses were so embarrassing that Polman challenged them to refocus their entire strategies on customers. This type of customer engagement signals to the entire organisation that the company puts customers first.

Remain discounted the apathy of the millennial generation, which favoured Remain, but only 36% voted. The lack of direct contact, creating real opportunities for listening and sharing concerns, was a weakness.

Think, act and behave with transparency In today’s digitally connected world, anything less than complete transparency creates a lack of trust. Employees expect their leaders to keep them informed about what is going on, no matter how negative the news. When they are not treated with this respect, they turn to external sources and internal rumours for information, which undermines leaders even more.

For example, following staff layoffs, Zappos founder Tony Hsieh wrote to employees: ‘Remember this is not my company, and this is not our investors’ company. This company is all of ours, and it’s up to all of us where we go from here.’ Hsieh’s communications are authentic, transparent, and informal. Honest conversations helped to heal issues. Rather than frowning on problems, Hsieh used them to come up with solutions.

Emotion beats logic, and hope beats fear This is a headline I saw in response to the way in which comments from Mark Carney, Governor of the Bank of England, were dismissed. Carney, like those of us with a technical background, default to logical argument an analysis of the risks that might be faced. However, the Brexit campaign showed how little influence this approach carries with many people.

Since Aristotle’s time, effective leaders have recognised the power of emotional appeal (pathos) as a complement to rational argument (logos). The Leave campaigners focused their message at voter’s hearts not their heads, on patriotism, freedom and fear. The Remain campaigners peddled Aristotle’s third way (ethos) to win an argument, citing the expertise and credentials of their advocates.

However, voters ignored the experts. The underlying point here is that whilst we need to rely on the knowledge of others, in instances like Brexit where the arguments are complex and it becomes unfathomable to determine true ‘facts’, people give up trying to get to the truth, and fall back on gut feel and beliefs overcome conflicting evidence.

Indeed, both sides of the debate offered various ‘facts’ to support their arguments. The pile-up of competing promises and predictions left the public confused at best, cynical at worst. The Leave campaign won over by speaking to the anxiety and pain of people who felt ignored. In the end, it didn’t matter to working class voters that Johnson attended an elite Eton School, what counted was that Johnson’s statements resonated with their own grievances and anti-establishment sentiments

The implications for business leaders is that developed expertise and analysis only gets you so far, if you want to bring people with you, you also need emotional conviction and harness intuition effectively. People care less about facts per se than the implications of these facts to their well-being.

It does no good to deny that humans are emotional as well as rational. A campaign that elicits both emotional engagement and intellectual understanding has a huge advantage over one that appeals mainly to rationality.

A leader is a dealer in hope The importance of being an authentic leader – with alignment of thoughts, actions and feelings as enabling trust to inspire collective action – was clearly shown. Leaders advocating change must speak with sincere heartfelt conviction rather than using rhetoric to demand an obligation.

For me, the leading personalities on both sides were frequently manifested as double-dealing hypocrites, masking their ambivalence about the EU for their own self-promotion and careerist convenience. Credibility and authenticity are closely linked, and people are aware and sensitive to the slightest suggestion of hypocrisy.

Both sides of the debate engaged almost solely in fear-based leadership and scaremongering, reminding us constantly of all the short-term problems and issues associated with the opposing campaign. The Leavers focused on problems and issues with immigration and bureaucracy while the Remainers focused almost exclusively on speculating about the economic fallout from Brexit.

Be a positive, visionary leadership Leadership on both sides failed to provide any positive, coherent vision for the near or long term future of staying or exiting the EU. Their performance lacked vision, cohesion, passion and confidence.

To fully appreciate the power of a unifying vision, recall the powerful example provided by the late South African president, Nelson Mandela, who unified the country with his vision of a ‘rainbow nation’ for post-apartheid South Africa. He never resorted to the tactics of scaremongering and fear of change, rather retained an optimistic and positive vision of a future for all, replacing the dogmas of the past.

To deliver change, leaders need to create trust by addressing the real challenges and dilemmas in a positive, transparent and solutions-focused manner. Leaders should deliberately adopt a more intentional approach about their words and actions and how these impact their business.

Why should anyone be led by you? Formal authority counts for almost nothing in those moments of truth. Leadership is a function of what you say and do that attracts others to follow you. Farage had influence but no authority, following Brexit Corbyn has a formal mandate but no influence within the parliamentary Labour party.

The lesson for business leaders is clear, as recounted in Rob Goffee and Gareth Jones book Why Should Anyone be Led by You? It is a question all leaders should all ask themselves – do people have any reason to follow you, above and beyond what their reporting line tells them to do?

Watching Boris Johnson deliver his speech on the Friday morning exiting his challenge for Prime Minister, you could see from his body language that he was starting to wonder what on earth he had done. He had treated the campaign like an Oxford University debate – clever arguments and put downs, with no cares for the consequences – and now he reaped the rewards.

He once famously said he was in favour of having cake and eating cake as well, but despite being an attractive leader to some, eventually people saw through his ‘style over substance’ approach, at which point, a large chunk of his support dissolved away. He simply lacked credibility as a leader.

The leadership lesson here is stay true to yourself and stay on good terms with those around you. If you become too opportunistic, or if you start making empty promises, you will pay for it later. You aren’t a leader is you don’t have any followers.

‘Political leadership’ is an oxymoron by any measure – enduring and woeful unethical individual behaviours driven by self-interest, the absence of a credible ideology and rhetoric underpinned by convenient metrics just to name a few issues where there is no long-term vision that I’ve seen.

Leadership success always starts with vision. John Kennedy famously dreamed of putting a man on the moon. Eleanor Roosevelt envisioned a world of equal opportunity for women and minorities. Compelling visions can truly inspire people. But there is actually nothing mystical about vision, simply, a vision is a picture of what an organisation could and should be.

A hallmark of great leaders is that their vision includes big ideas. Big ideas get people excited. Nobody wants to do something small. Leaders want to feel that what they do matters – Kennedy’s vision for the space programme was ‘We choose to go to the moon . . . not because it is easy, but because it is hard’.

Great business leaders also know how to paint a vivid picture of the future. They make it look easy. However, most of them have worked hard to develop and articulate their thoughts. A powerful vision, well-articulated, attracts people, motivates them to take action toward progress, unites them to a common purpose and drives breakthrough business results.

A leader’s core vision provides the glue that holds an organisation together through time, consisting of core values and core purpose, ideology shaping the vision, the raison d’être. You discover core ideology by looking inside, and connecting with sincerity, humility and authenticity. You can’t fake it.

What Brexit showed what is needed in our political leaders is this big commitment to emotional and intellectual transparency, and robust validation, such that when people see what their vision is, there is almost an audible gasp, creating an emotional connection to sharing the vision.

Brexit should be a wakeup call for all business leaders. The result and feedback showed Britain’s leaders were out of sync with its voters. Could the same thing be happening with your workers in your business? Are you connected and in touch, creating engagement, creating and sharing a vision? Or are you too intent on achieving your own personal agenda and progress? Ask yourself, ‘Why should anyone be led by you?’