What is Open Innovation? For any entrepreneur innovation is crucial to success, but if innovations are developed in isolation, the benefits can be limited in comparison to the effort.

At a recent event in Norwich, our speaker Stephen Clulow, kicked off the discussion (See photos) with a brief introduction about the meaning and importance of innovation. Innovation is the commercial application and successful exploitation of an idea. Innovation means introducing something new into your business. This could be a single major breakthrough – eg a totally new product or service – or it can be a series of small, incremental changes.

The outcomes of successful innovation can be measured by an increase in profit margin and more shareholder value. As a general observation, having a significant spend in R&D doesn’t automatically mean that a business is innovating or that the innovation will be successfull. In addition, companies need to embrace two key concepts. The first is that not all the smart people in the world work for you and the second is that breakthroughs will only happen by collaboration. As proof of the importance of the above, research has shown that the 20% of companies that belive they already have all the ideas (and people) they need, are actually ranked in the bottom 20% for profits.

To succeed with an Open Innovation approach, the best innovators need to have 3 key capabilities:

• Idea management
• Involvement of staff & collaborators
• Create innovative climate

IS OI FOR STARTUPS?

OI is essential to start-ups and start-ups are essential to OI. That’s because the OI is the smartest way for SMEs to provide innovative products to larger companies. Open innovation is being open: it’s not only about improving your technology but also “using other people’s wheels”. There are a lot of buzzwords that we can use to explain what OI means but the most effective is: collaboration. By explaining the famous Chesbrough Funnel (see below), Stephen showed us that collaborating, and then being open to innovation with third parties, creates more value than trying to innovate on your own.

Source: http://sociedadinformacion.fundacion.telefonica.com/DYC/SHI/seccion=1188&idioma=es_ES&id=2009100116310225&activo=4.do?elem=8221

SO WHAT?
It’s proven that big companies running open innovation challenges improve significantly their profits generating up to $1bn/year of added value or savings. Such challenges are probably the simplest way for early-stage companies to engage in the OI process.

Today everyone can innovate, even starting from free and already existing data such as GPS, mobile device, etc. Increasingly, the whole Open Data movement is also creating new opportunities for Open Innovation (eg. Rewired State). Alternatively, organisations are using data from user searches to predict world-wide phenomena, such as the prediction of world-wide flu trends by Google.org.

If you want to fund your initiative, don’t forget the Crowdfunding options. By pooling  financial resources you can obtain funding for your project from the wider community, where a common desire and trust are the most important driving force for participation.

CONCLUSIONS
Participating in OI initiatives can provide valuable business intelligence and very quick feedback loops to early-stage companies whose strength is their ability to be agile and create disruptive innovations. But OI can also have negative repercussion on your business. Partecipating in OI means taking risks and working with limited resources. OI can open a lot of doors, but never forget the aims, strategy and goals from which you started.

Our most recent Norwich event, held at the John Innes Centre, generated lots of discussion between the speaker Mark Donaldson (Mint Consulting)  and a lively audience. The reason being that it covered a wide range of topics that early-stage entrepreneurs don’t usually think about.

In the first part of the seminar, we learned what to take into consideration when deciding the legal form to adopt: companies, LLTs, sole proprietorship, partnerships or charities. Many factors come into play when choosing a legal structure.

First of all, the structure that the business adopts will have a big impact on how profit is taxed. Basically, each form is taxed somewhat differently, and the structure of your business can have significant personal tax consequences. Since it looks like we will remain in a relatively high tax economy over the next few years, it is more important than ever to manage your tax affairs effectively.

Also, depending on the nature of your business, you should adopt the form that grants you the flexibility you need.

If the business is set up as a sole trade/partnership then the owners will become self employed and will need to complete self assessment tax returns each year. The owners will be taxed on their share of the profit from the business each year, with tax payment normally due in January and July.

If the new business is a limited company then the taxation of profits is somewhat different. Limited companies are separate entities for both taxation and legal purposes. If the company makes a profit then this will be subject to corporation tax.

In a limited company if you are a shareholder you may only withdraw funds through dividends. If you are also a company director or employee you may in addition receive compensation through salary or director’s loans. In all cases, the income will be subject to personal taxation. In general, it is best to have a mix of salary and dividends if possible. This is because dividends are not subject to PAYE deductions.

It should be pointed out that most choices are not irrevocable. It’s possible to migrate from one legal form to another as needs change.

Going forwards in the key decisions for HMRC & businesses, if a new business is to take on employees then they need to start dealing with payroll and PAYE on a monthly basis. New companies will need to set up a PAYE scheme and obtain the appropriate PAYE references.

Moreover, if your business will be making sales of more than £77,000 in a year then you will need to register your business for VAT, and then add VAT to your invoices. But whether this means that your prices will go up will depend on whether your customers are VAT registered or not.

Small businesses should consider the flat rate VAT scheme which simplifies the process of completing a VAT return by applying a flat rate to your gross sales and paying this amount to HMRC rather than calculating the VAT at 20% on all your sales invoices and deducting the VAT on any purchase invoices.

Registering for VAT will mean that you will need to complete and submit quarterly VAT returns and pay any VAT due to HMRC. VAT returns are now required to be filed online.

Next step is finding a way to finance your business. the Key points you should keep in mind are:

• Consider different sources of funding
• Understand your business financing needs and always factor in a contingency
• Be clear on the way you will execute your Business Plan
• Understand the meaning of your financial projections and make sure they are realistic

Based on the above you can choose the funding options which best fit your business, with a fair balance of risk and reward:

• Personal cash / Bootstrapping
• Bank financing/lending
• External investors /angel funding
• Joint Ventures
• Partnership with suppliers
• Grant funding

In the second session, the discussion covered the following topics:

• Different ways to lend funds to the business, depending on the structure chosen.
• Managing cashflow in the business on the various sides (production, Bank, customers, suppliers and HMRC).
• Models of funding, exploring advantages and difficulties for two main categories of funding, Equity and Debt.
• Enterprise Investment Scheme, to encourage inward investment into SME’s from business angels, reducing exposure risk to an investor, and providing 30% income tax relief to individuals investing (providing shares held for 3 years).
• R&D Tax Credits, to provide Corporation Tax relief which may reduce the tax owed.

The last topic introduced is not usually considered when starting a business on your own: exiting the business. It is important to plan for the sale, making your business as attractive and valuable as possible, even though it may take many years to get your business ready.

Starting a business is a huge step, and being aware of the key legal and financial options/constraints from the beginning is essential. As we learned, these decisions can have significant consequences on your business.

We had a great turnout – of students and entrepreneurs – for this event recently held at JBS and organized with CfEL.

Eric Swain opened the discussion telling us why social media will be more and more present in our lives and consequently why the companies cannot ignore this important communication channel. He showed us that social media creates communities of like-minded people who become the most important stakeholders for any business.

The first month of 2012 was pretty packed and we managed to fit in 3 events in 4 weeks, including 2 separate events on the topic of building and maintaining successful teams.

This is an aspect that has a huge impact on early-stage companies, but also on established businesses. The former because having a compact, motivated and focussed team is critical to success. The latter because having a (less compact), motivated and focussed teams is…….well even more critical to continued success.

Simon Jones speaking at Cambridge event. Photo Credit - Jennifer Coker

The 2 events in Cambridge and Norwich covered various topics, and generated lots of discussion with the speakers. So we thought it would be good to summarise their advice.

(We’d like to thank our speakers for giving excellent presentations talking about their experience: Tom Wood – Foolproof, Dan Simpson – Proteo, Simon Jones – Studio24, Benjamin Wirtz – HandyElephant)

Vision, Goals and Relationships

• A key principle at the base of growing a team is “Know Thyself” – If you (founders) don’t understand your own aspirations, limitations, motivation you will not be able to build a team that complements you
• Clearly define your Vision + Mission + Goals and then review them regularly. It is important to articulate this & NOT JUST to create “mgmt yack”. Especially at the beginning, you want people to join you that share the vision.
• Relationship with co-founders – It’s important to set frequent break points in early years to verify progress (and relationship) with co-founders. Don’t forget to agree early how to resolve disagreements (whether on legal or informal basis). For the latter, you can even agree on someone external who will mediate if you reach a stalemate.
• The team is NOT a family. Team members rely on discipline for success. Family members push boundaries to assert themselves!
• Discipline does not exclude providing personal support to your team in times of difficulty. At the beginning, going to the pub once a week is easiest way to keep in touch with your team.

How to hire…. and who?%

Guest Blog by Andrew Wood
(Summary of the talk given at Norwich Startup Masterclass, Jan 16th 2012)

Aimed at early stage businesses and those looking to launch into startup life the session aims is to give an introduction to what you need to think about and the options out there.

One of the biggest issues that startups face is coping with the legal aspects of setting up and running a business. From the outside this can look pretty arcane and frankly a bit dull but it needs to be handled correctly or you risk facing major problems as your company develops. Whether it is protecting your idea or structuring your business to minimise risk, these are all decisions that need to be researched and thought through when you begin.

The law is also one of the areas where businesses often struggle most to find impartial, non-technical advice that sets out the options tailored to their own needs. And while the web can provide background information, nothing beats a face-to-face conversation that allows you to ask (and get answers to) your individual questions. Every business is different.

With BusinessLink moving solely online, there’s even less free advice available, hence this month’s Norfolk Startup Masterclass session focusing on How to avoid awful muddles and other legal nasties. In the talk, I’ll go into more detail on the legal decisions you need to take at all stages of the startup lifecycle.

Without giving too much away it comes down to what I call the 5 Rs – questions you need to ask yourself when setting up:

• Risk – how much am I happy with?
• Responsibilities – who am I responsible for? What are my obligations?
• Rights – What are my rights?
• Rewards/Return on exit or otherwise – What am I looking for?
• Relationship with others, particularly stakeholders and employees – How will these be managed?

Overall I’m going to take a ‘cradle to grave’ approach to running a business, so the interactive session will deal with the following aspects:

• How do I setup?
• How do we manage equity?
• Do I need a shareholders agreement?
• I am the company (NOT!)
• What basic contracts do I need?
• How do I keep things legal?
• How do founders avoid legal dead-ends when things go wrong?
• Key aspects regarding IP protection
• Key aspects regarding collaborations & employees

I’ll include a checklist of the sort of areas you need to look at – from creating a business plan to insurance, health and safety and IP and trademarks. There will be ample time for questions, and like all the Startup Masterclass events, time at the beginning and end for networking with the vibrant Norfolk startup community.

Andrew Wood, Consultant Solicitor, Birketts LLP

Andrew has extensive experience of acting on corporate and commercial matters including advising on the reorganisation of company structures, mergers and acquisitions, the incorporation of joint venture companies, advising on distribution and agency agreement terms and conditions, partnerships and LLPs,technology transfer agreements, competition law and company secretarial services.

Guest Post by Paul Walsh, CEO of Cognidox. Paul writes a regular blog on software matters which you can find here.

When I was asked to teach a Cambridge Startup Masterclass the first obstacle was to choose a topic. In the end I chose to talk about the Lean Startup and the tools that would help a Startup stay lean.

That’s the first challenge: What is a Lean Startup? During the class I’ll summarise the work done so far (mostly by Eric Ries in his book “The Lean Startup”).

Everyone tends to think of “Lean” in this context as being short on money and having to make do on free or cheap tools. That can well be true, but it’s really more about cutting out the waste of time and/or money. Even if you have just closed a funding round, calling in the SAP or Oracle consultants to implement a million-dollar system is usually just about as dumb as lining the staff car park with new, expensive sports cars.

It’s certainly true these days that excellent software tools are available for little or nothing. People have grown to hate “company systems” and are unimpressed when it takes only seconds to upload and tag personal photos yet days to find a company document.

But, even if you had the money to spare, there’s no assurance most software tools will move your company forward, let alone accelerate growth. Many of them seem to be carriages that have lost their wheels – usually around the time the designers were acquired by the BigCo now selling it.

When you offer to talk about tools, there’s a huge risk it will turn into a “My Favourite Bookmarks” session. I may be thrilled with some tool I use, but I can’t expect you to feel equally excited until I show that it meets a need. If that need was to find new songs that are just like the songs that you already like then maybe that part is easy. But we’re talking obtuse Startups: a word that has Alice in Wonderland abilities to mean just what you choose it to mean – neither more nor less.

So I can’t (and won’t) just sit there opening boxes containing one glittery tool after another.

The other way to segment it might be to try sorting the tools by job title – you know, CEO tools, Tools for Finance, Tools for Legal, etc. Two problems with that: job titles are not well-defined either, and anyway a Startup will probably not be able to fill all these roles.

So I want to sweep away the job titles and find the tasks underneath. There are things a Startup needs, and you set tasks to do / get / achieve them; and it helps big-time if the people doing the task are good at it. Well-executed tasks need great skills or abilities.

My best shot at this is there are 6 core Abilities. I label them as:

• Forming
• Transforming
• Projecting
• Persuading
• Collecting
• Protecting

There are 6 ability types, but it doesn’t at all follow that the ideal Startup is 6 persons. Knowing what you should be doing is the first step towards covering for what you are missing.

It turns out that the Lean Startup model offers a framework to manage these 6 abilities, and helps you understand which ability is optimal at different stages of the product cycle.

The mantra of the Lean Startup is to keep the product cycles short and focussed. Each cycle is like a quest to discover something new, or earn some new level. The abilities of your team shape the success of the quest. Your best plans will be challenged by unforeseen circumstances. It all soon threatens to become a bit “World of Warcraft: The Startup”, with Quests, Guilds and Mages over-running the place.

Luckily we can stick to reality by talking about the best tools to strengthen each of the abilities when used in the Lean Startup model. So when you are forming new ideas, what are the best tools to capture the thought flow? When you want to test something you have built (transformed) what are the best tools to do user testing? As you persuade a customer to sign-up, what are the best tools to help you keep track of the relationship? And so on.

Anyway, that’s the small quest I have set for myself next week in a session entitled “Stay Lean: Your Startup Toolkit”. It’s one of the Cambridge Startup Masterclass talks that take place at ideaSpace, and this time it’s my turn. My aim is that each person there will discover at least one tool that’s new to them and that they’ll use regularly from the next day onwards.

Paul Walsh

Paul Walsh is CEO at CogniDox, web-based software used by high-tech companies for safe and secure control of their design knowledge assets. He has had software management and CEO roles in a number of start-up companies of varying sizes and outcomes (but all great experiences).You can read his full profile here.

Guest Blog by Sue Keogh
(Summary of the talk given at Cambridge Startup Masterclass, Nov 28th 2011)

On the morning of The Accidental Entrepreneur: Different Pathways To Success, I was reading the Guardian article Tech City: The magic roundabout and was struck by the fact that none of the Silicon Roundabout start-up founders in the piece were female. At the masterclass that evening I was also struck by Dr Shima Barakat’s comment that women don’t like to refer to themselves as entrepreneurs. They’re ‘just running a business’. Why is this? What is it that’s putting women off declaring themselves part of the entrepreneurial world and enjoying the challenges, support and potential triumphs on offer?

Is it because the term itself is shifting in meaning? It seems to have gone from simply someone who is setting up a new enterprise to this caricature of the Silicon Valley start-up founder – the chest-beating caffeine junkie with a ‘Stay hungry, stay foolish’ tattoo who boasts on Twitter about his lack of sleep due to running four separate start-ups.

The perception is being created that to become an entrepreneur means being part of this macho, aggressive culture where sleep is for losers and people battle it out like gladiators, as TechCrunch founder Michael Arrington would have it in his post The Man In The Arena. Or even better, play at being pirates!

But what if you don’t identify with all this? What if you’ve become an entrepreneur without realising it? What if you feel you just don’t fit?

These questions were addressed throughout the Accidental Entrepreneur event. The idea behind it was to focus on the motivations and realities for women starting businesses. Then organisers realised that ‘accidental entrepreneurs’ aren’t limited to women. Maybe men have this feeling of not fitting the mould too. A mixed panel, chaired by Claire Ruskin (CEO, Cambridge Network) shared their different stories about how they came to set up a business and the forces that drove them.

A key factor was control, which Julie Barnes from Abcodia felt was drifting away in her previous role. This was in part due to raising a family. Founding a company herself meant she was more able to balance the demands of work and family life.

Freedom was also important, with members of the panel feeling that they were shaping their own destiny rather than having to follow the path dictated to them when part of a large, established company. A driving force for Madhuri Warren from Pathology Diagnostics and for Ann Clarke with her charity Frozen Ark, which preserves the genetic resources of endangered species, was the belief that you can do something better. And the best way to do this is to get on and do it yourself.

A very common theme was redundancy. To decide to jump ship from a stable job so you can set up a new enterprise at your own personal risk takes a lot of confidence, not to mention solid financial backing. But with redundancy you are forced into the situation where you don’t have any choice but to pick yourself up and find a way of paying the mortgage.

Andrew Hatcher commented that redundancy was the best thing that ever happened to him. While it may not feel like it at the time, it can be the push you need. I couldn’t help but think of the day I was issued with redundancy from ITV – only to discover five days later that I was pregnant. Which is what you can call a tricky situation.

As job losses in the public sector and elsewhere hit and women’s unemployment reaches a record high, we will see a fresh stream of entrepreneurs from both genders and all ages and backgrounds. It’s important to recognise the different pathways people are taking and find ways of supporting them in their new enterprises, from the ones who will always stay at 0 to 5 employees to those with high-growth ventures who seek millions in VC funding and plan to sell the whole thing off in five years.

As a world-class tech hub, Cambridge has a lot to offer people thinking about starting a business. Initiatives like the workshops offered through Startup Masterclass or the business support on offer at St John’s Innovation Centre and the Centre for Entrepreneurial Learning (CfEL) are so useful, along with Pitch and Mix meetups and groups offering networking and support such as Cambridge AWiSE, Cambridge Network, and CamCreative. There are also a number of mentoring schemes offered through both universities.

Not everyone has the same notion of success. So if you feel you don’t conform to the stereotypical image of an entrepreneur, it’s OK. Just sharpen your elbows, don’t be afraid to reach out for support, and get on with it. And certainly don’t bother with that Steve Jobs tattoo.

Sue Keogh

Sue’s company Sookio offers editorial support such as website copywriting, ongoing updates and social media campaigns to small businesses and household names including AOL, Yahoo!, the BBC, ITV and Toshiba. She is also part of CamCreative, TEDxGranta and the campaign for The Cambridge Phenomenon: 50 Years of Innovation and Enterprise. Sue is also working with Cambridge angel investor Philip Baddeley to produce a graphic novel about entrepreneurs, to be published in the coming months.

The first of the events covering this topic was held in Cambridge, with Philip Lowndes as the speaker.

We started off by going round and getting everyone to tell the others about their current / future project. This is something we will try doing at each event, so that all our attendees get a feel for what their peers are doing.

Philip then started by asking the attendees their reasons for coming. In summary, the main reasons were

• understand how to find customers
• verify an idea
• identify market before focussing on technology solution
• reflect on business practices

During the talk, Philip then went on to cover 5 basic questions that need to be answered very early on. Below is just a very brief summary of the talk, and the discussion with the attendees.

1) Who are your target customers: Some of the general examples provided by the attendees were

• people who want to save money
• people who are looking for customers for their products / services
• people who want technology to solve / simplify a problem

The interesting observation made about many web / internet businesses is that often, the user base they want to attract are NOT their customers. This is especially true of sites where the large user base is a vehicle to sell advertising. So there is a very fine balance to be found between the community you want to build, and who will pay to access that community.

2) What unsatisfied need or problem do your target customers have: The fundamental principle here is that you should never make assumptions on a customer’s need, without somehow validating that first. There are basic needs you should try and address, and you need to understand the customer’s priorities for those needs.

3) What solution can you provide & how is it better than the competition? What is really important here is that you have to stand in the “customer’s shoes” and deliver something that is of real benefit to them. Having done that you can then understand how best to improve and / or distinguish your solution from that of your competitors.

4) Proof and what makes you credible! Right from the beginning proof is what you desperately need. So turn to your immediate network, and “borrow” that credibility by getting associates / friends / colleagues / mentors to introduce you to potential customers. The customers will – at least initially – listen to you on the basis of the relationships you have built. After that it’s up to you to build that credibility by offering free incentives, demonstrator products, gather testimonials, etc.

5) How will you make money from this? This is probably the most difficult thing to get right, because it requires an in depth knowledge of your market, the expected growth rate for the market, the technological maturity of the segment, the ease of reaching new customers vs converting existing customers, etc.

Lots of thoughts to take away!

P.S. For the participants at the event, don’t forget that there are a limited number of FREE slots for one-2-one mentoring with Philip Lowndes (worth over £150), that you can book here.[podcast]http://startupmasterclass.co.uk/wp-content/uploads/Norwich_20111212_Part1.mp3[/podcast][podcast]http://startupmasterclass.co.uk/wp-content/uploads/Norwich_20111212_Part2.mp3[/podcast]

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