Entrepreneurial spirit hasn't gone away

Despite problems with financing, a vibrant entrepreneurial culture is thriving beneath the tough economic reality

IT’S THURSDAY evening and Dublin’s trendy 4 Dame Lane bar is hopping. The occasion is not a typical after-work drinks event, but TechBrew, an informal gathering of software company managers and would-be entrepreneurs, who meet up every few months over a bite and a beer to discuss business.

In one corner, a number of people are given a soapbox from which to present on a chosen topic for 10 minutes.

“No slides, just chat,” says Paul Sweetman, director of the Irish Software Association, the Ibec group that organises the event. “Afterwards, people have a chance to have a chat and a drink and discuss ideas. We usually get 100 or more people attending – everyone from senior people in tech multinationals to those just starting out with a new software business.”

TechBrew is just one example of a vibrant entrepreneurial culture that is thriving beneath the tough economic reality. Entrepreneurial activity is a key strand of the Irish economy but, like other sectors, it is not immune to the recession.

According to visionnet.ie, a service that provides data on Irish companies, 14,600 new companies were formed last year. That's down from about 18,000 in 2000, although the data includes a range of corporate structures such as subsidiary and associate companies, which makes it difficult to align the figures exactly to real businesses.

According to the Global Entrepreneurship Monitor report (Gem) – widely perceived to be one of the key barometers of entrepreneurial activity worldwide – an estimated 800 people a month started new businesses in Ireland in 2010, down from 2,800 in 2008.

The report found that both early-stage and established Irish entrepreneurs said they had found it harder to start a business as a result of the economic crisis, while there were fewer business opportunities.

Nonetheless, despite the slowdown in entrepreneurial activity since the onset of the recession, Ireland remains an extremely entrepreneurial-focused society, as the relatively high figure of 800 new businesses a month suggests.

According to the 2010 Gem report, Ireland ranked second out of 13 EU countries in terms of its rate of entrepreneurial activity, and top in terms of innovation among early-stage entrepreneurs.

According to Frank Roche, professor of entrepreneurship at the UCD Smurfit School, Ireland’s transition towards an entrepreneurial culture dates back to the late 1980s and early 1990s.

“During this time, Ireland was at a very low point economically. Unemployment was at more than 18 per cent. What happened from community to community across the country was that people just gave up on the government trying to solve the problem and began to take charge of it themselves.”

Roche cites activity in towns such as Kiltimagh, Ballyhoura and Blennerville in Kerry, which reinvented themselves through community enterprise.

“By the time the economy began to grow in 1995 and 1996, a lot of small enterprises had already come on stream and were positioned to avail of this growth.”

While entrepreneurship remains a feature of Irish work patterns, the reasons people choose to become entrepreneurs have changed.

“One trend we identified in the Gem survey was a huge increase in the number of so-called ‘necessity entrepreneurs’ – people who start up a business because they have to, rather than because they want to,” says Paula Fitzsimons, Gem report director for Ireland.

In 2010, 32 per cent of entrepreneurs were motivated by “necessity” rather than by “opportunity”, the report found, compared with 6 per cent in 2007.

So how does this tally with the experience of real entrepreneurs? Ask seasoned entrepreneurs about the effect of the recession on entrepreneurial activity and the answer is virtually unanimous: becoming an entrepreneur has always been difficult.

Aerogen founder John Power has co-founded several start-ups, mostly in the life-science sectors. Like many Irish entrepreneurs in life sciences, he gained experience working for a large company before moving out on his own.

He believes the issues currently facing entrepreneurs – such as funding – always existed. “You need to find ways to advance your idea as far down the road as you can before you can get financial resources.”

He says the concept of the entrepreneur’s “sweat equity” – the notion that the entrepreneur’s contribution to the project can be in the form of hard work or intelligence rather than financial input – is flawed. “I remortgaged three times. I lost every penny I had before on ventures. You have to be prepared to boot-strap.”

Having an exit strategy is also crucial in order to secure large-scale venture capital and investor support, Power adds.

Entrepreneur Gerard Tannam, chairman of the David Manley Emerging Entrepreneur Awards, agrees. He says there is a range of State-backed and private venture capital funds available for start-ups – high-tech Irish companies raised €274.4 million from investors in 2011, down from €310.2 million in 2010, according to the Irish Venture Capital Association.

He also admires what he sees as a self- confidence that is evident in the younger generation.

“I see it through Archipelago, for example, a group aimed at young entrepreneurs. There are 17-, 18-, 19-year-olds developing programmes, particularly in the app space. Even if they don’t work, it’s seen as a badge of honour. That level of confidence is great.”

Nonetheless, despite the encouraging level of entrepreneurial activity around, funding remains an issue, with private equity and venture capital funding increasingly the main sources as banks continue to tighten their balance sheets. In a contracting market, investors are becoming more selective of when – and where – to invest. One of the key problems for Irish start-ups, historically, has been their ability to scale up.

“While we’re good at forming start-ups in Ireland, we’re not as good at growing companies,” says Prof Frank Roche. This is down to three reasons. Firstly, the size of the Irish market is a constraint; it is much more expensive to develop a business overseas than in a domestic market.

A second issue is the availability and suitability of management staff who have the specific skills to grow the business. Finally the availability of funds to develop a company further is crucial.

“Start-ups may source up to a quarter of a million [euro] in the early stage of development, for example,” says Prof Roche, “but as the company grows and the financial requirement reaches say €10 or €15 million, they need to look outside Ireland, usually to the US, for that level of investment.”

Despite the challenges facing Irish entrepreneurs, there are a range of success stories. According to Frank O’Keeffe, the Ernst Young partner behind the successful Entrepreneur of the Year awards, the calibre of the nominees shows no signs of abating. The fields of technology, digital media and life sciences continue to dominate in terms of successful entrepreneurial enterprises, though sectors such as construction and food are beginning to see some activity. Indeed, one of the main areas of innovation in the Irish economy at the moment is the food and drink sector.

This week a number of new Irish food companies met buyers from 28 countries at An Bord Bia’s MarketPlace event at the Convention Centre Dublin. One of the unique characteristics of the food industry here is the wide range and size of the businesses operating – from the small family producer to large companies such as Kerry and Glanbia, and scientific-based companies such as Shannon-based ABC Nutrition. ABC is making strides in the international sports nutrition market, exporting more than 90 per cent of its product.

As the sale of John Teeling’s Cooley Distillery to US drinks company Beam for $95 million shows, it’s not just Ireland’s high-tech sector that can generate return. For the canny entrepreneur, the opportunities are everywhere.

SMART COOKIES: MONEY FROM DOUGH

SOPHIE MORRIS and Graham Clarke set up Kooky Dough in 2009. The pair, both finance graduates, met in 2008 while working in a wealth management company.

After losing their jobs following the downturn, they set up the business. Clarke had come up with the idea after seeing similar products in the US in 2005, while Morris, who always had a passion for food, honed her culinary skills with a three-month course at Ballymaloe.

Kooky Dough is a ready-made dough mix. Each roll makes 15 cookies. Customers slice the dough, place it on a baking tray and bake for eight minutes. Baking parchment is also provided.

After spending a couple of months developing the recipe and working on branding with the help of a grant and mentoring from Dublin City Enterprise Board, Clarke and Morris began selling their products at farmers’ markets.

During 2010 they built up their presence on retailers’ shelves, signing deals with Superquinn in March and Tesco in June.

They now have listings nationally and also have contracts with food service businesses.

Last year they began expanding into Britain.

In October, they secured a contract with Waitrose, and sales are going extremely well, according to Clarke. Further international expansion, particularly into Britain, is Kooky Dough’s main focus for this year.

CASTING THE NET: ONLINE NETWORKING FOR SMALL BUSINESS

HAVING WORKED as a mortgage broker during the boom, the downturn in the property market meant David Curry had to move in another direction.

As the mortgage business began to slow down, Curry found himself attending networking seminars and events, an experience that gave him the idea for his own business.

“I was attending a lot of networking events and could see it was an effective way for small businesses to get new customers. There was room for something new in the market, which would have an online dimension.”

The result was SmartLeads Business Networks, an online and traditional networking group aimed at small businesses. Having secured support, including office space from the Digital Hub in Dublin, Curry launched the website smartleads.ie.

In 2011 the traditional face- to-face networking groups were launched.

Today, Smartleads operates business networking groups in Dublin and Limerick, and is launching a new group in north Dublin next month.

Through his own business Curry deals with a range of small businesses, many of which are start-ups.

“I think one of the main issues facing start-ups is the issue of payment. Many small businesses are finding it hard to get paid from their own customers. Access to finance is the other main issue.”

Nonetheless, he believes, there is a range of innovative new businesses that are making waves, particularly in the field of ecommerce and digital media.