Dave Morrison draws on his entrepreneurial background in DJing and club promotion every day as partner at top entertainment accountants Nyman Libson Paul. We asked him about routes to creative financing.
With the dominance of digital platforms, what’s your view on creative entrepreneurs operating in this environment?
The entertainment industry never really changes because people always have the same needs – they want music they can sing and dance to, and stories they can get involved in. People consume those all the time. The underlying product is the same, but it’s the way it’s distributed and delivered that has changed.
Taking the UK as a model, the money in entertainment is not in making it; it’s in distributing it. That applies to every part of the entertainment world. Google, Amazon and Facebook are global distributors.
Within film in particular, one issue we’ve had in the UK is that we don’t control distribution. Our strength lies in organic, creative businesses. If you look at this country, they are many entrepreneurs and we are good at entrepreneurialism.
Aside from the distribution issue, what’s the landscape like for entrepreneurs seeking funding?
Trying to find investment is a major challenge. An immediate problem for entrepreneurs is not a lack of seed funding, it’s the lack of the ‘bit in between,’ when your business isn’t big enough to borrow from a bank, but it’s past the seed stage. It’s the teenage life of a venture. The teenage years are difficult for human beings and obviously they’re difficult for companies too. It’s an area that’s not often supported.
In the UK, while we excel at producing disruptive companies, due to that lack of funding for the middle many are bought out by major conglomerates, ending up in foreign ownership. Accordingly, a lot of UK entrepreneurs start with the ambition that they’ll sell to a bigger player.
How do you think the situation is going to evolve in terms of funding?
Until we know what the Brexit deal is, we don’t know what the position is for the UK overall. However, Enterprise Investment Schemes (EIS) should get through because there’s an understanding that small businesses don’t have access to finance.
And there is a long-term strategy to get capital into companies so that they do have time to grow properly. A recent consultation document released by the government, called Patient Capital, is aimed at changing EIS and Seed Enterprise Investment Schemes (SEIS) so that quick buck schemes marketed by financial institutions get excluded. There are several specific aspects to the consultation that remain under discussion but broadly that intention can be seen as positive.
In this environment, what are your top tips for an entrepreneur trying to get financing?
Firstly, an investor has to believe in you. Second, they have to believe in the project. Third, you need to offer an SEIS or EIS. As subsidiary points, it’s also important to have a professional team surrounding you. This applies especially if you’re perceived as the wild one with the wacky idea; it can help to have someone on board who appears more ‘sensible.’ Finally, being able to back up your idea with good research and evidence is also critical.
But primarily, an investor has got to believe that you can do it. As a disruptor, you’re probably going to be selling an idea that an investor can’t comprehend because they haven’t seen it before. That’s why having confidence in you comes before the project.
And every fledging business ought to be using SEIS or EIS, unless they’re one of the excluded trades. A key point about SEIS and EIS is that even if an investor loses their money, they get a good tax relief loss at the end that they can use efficiently. So an investor can have the reassurance that while they might lose 40%, on the other hand, if you’re right about your idea, they could double their money tax free. Suddenly, the whole package looks attractive.
Conversely, what do you caution against? Where do you see entrepreneurs, or even more established business owners, falling down?
Whether a venture is starting out, or has just been sold to a bigger player, what’s important is that there’s always a focus not just on building a business but building a community, be that fans, followers, customers or your network.
When I was a club promoter, I always started with the view that 90% of people weren’t going to come even if they were interested. The event might be on the wrong day, not in their neighbourhood, or it clashed with somebody’s birthday etc. So my approach was always to advertise too much.
It’s not wasted, because even if people don’t come, they’ve got the awareness. Whether events I put on ended up succeeding on the strength of advertising, word-of-mouth, or even marketing using influencers, it always comes back to building communities.
Is there any particular brand that has impressed you in this way?
I think the way cycling brand Rapha have operated has been superb. They provide a service for people in their niche through running regular offers, and you don’t have to buy anything. They did one over the summer, where if you had climbed a given number of metres in July, they would give you a free badge. I was able to participate and I got this beautiful badge sent back to me.
This is for people who are really keen and would do a lot to get a badge. Rapha recognises people’s commitment; that people are out there doing what they love, and they’re integrating that into their marketing. And whenever I’ve visited their shop, they’ve taken me around, showed me designs and asked for my view. They’re enthusiastic about what they do and they’re tuned into people’s passion. I hope they can maintain that.
What about niche media?
I’m a QPR fan and visit the QPR website Loft for Words run by Clive Whittingham. In an era where so many fanzines have failed, his has stayed strong and it’s because the standard of journalism is so excellent. Even fans of other teams will read his reports and comment on how good they are. It just shows that quality can survive; people appreciate good content.
Dave Morrison will be at the Design Museum on the evening of Monday November 6, 2017, speaking on finance basics for creative entrepreneurs. The talk is part of the Startup Essentials series run by Creative Entrepreneurs. Book your place for all talks here.