20th May, 2018

Fake entrepreneurs are like grandads trying to boogie

This is not just the age of fake news. Fake business is also widespread. For example, the late Nicky Berry was a contrarian investor and my first backer in business. He categorised hedge funds and many other institutional investors as fake owners. Berry asserted that they had little interest in the underlying business of a quoted company, but only cared about the short-term share price performance. He believed that a good business needs stable ownership, not swing-door owners. I agree with him.

A consequence of short-termism is that too many plc bosses are skilled at superficial corporate governance box-ticking and presentational waffle, but lack the ability to create long-term shareholder value. As Berry, whose father Lord Hartwell lost the ownership of the family’s Telegraph newspaper empire in 1986, wrote: “A real owner has a different timescale, a different concept of business risk, and a different definition of what constitutes value.”

There are also fake start-ups. A tech entrepreneur called Jensen Harris recently wrote a brilliant thread called “There’s no such thing as a startup inside of a big company”. He did one of these fake start-ups: it had a cool name, was agile and lean and it had big dreams. It started, however, within the existing infrastructure of a large corporation — including offices, perks, job security and administration. By contrast, a real start-up lives and breathes thanks to the combined efforts of each member of its tiny workforce — if they don’t strain every sinew, the company fails and they all have to find new jobs.

However, real start-ups possess qualities that no fake, corporate start-up possesses: raw hunger, an ability to embrace innovation and a fierce motivation to succeed. This is why, despite the limitless resources of large firms, they are regularly disrupted by new competitors with nothing except new ideas and fire in their bellies.

Many big organisations are desperate to jump on the “entrepreneurial” bandwagon. Consultants manufacture bogus words such as “intrapreneur” to make bureaucrats feel they can join the party. But these are fake entrepreneurs — like a grandad getting down on the dance floor to boogie with the kids.

Occasionally I am invited to speak to charities, universities or multinationals and explain how their employees can become entrepreneurial. The answer is straightforward: leave the comfy womb of a safe institution and start your own business. Such a move is never cost-free: there will be no guaranteed salary, no support staff and nowhere to hide if it all falls apart. But it will be the real thing.

Fake capitalism is also common. Recently, local authorities have gone on a ludicrous acquisition spree buying shopping centres — £250m has been spent in the last quarter alone. It seems estate agents and commercial landlords see the councils as dumb money, paying yesterday’s prices for fading assets they are ill-equipped to revive.

Unfortunately, the councils playing at fake capitalism are operating under the illusion that their access to cheap money makes them smart buyers. Council executives believe that tapping financing sources such as the Public Works Loan Board means such high-yielding investments will show a net return. The risk, though, is merely being passed on to ratepayers. The structural threats to low-quality retail property posed by online shopping will only intensify, and such back-door nationalisation is the last refuge of a dying industry.

Paradoxically, councils have contributed substantially to the demise of the very asset class they are now purchasing, due to onerous business rates, demonisation of drivers, overpriced city centre parking, and absurd planning decisions.

The largest group of fake capitalists are crony capitalists — those industries and tycoons relying on government connections and contracts. Most are quasi or absolute monopolies, all of them rent-seeking activities by their very nature. Classic sectors are airports, defence and utilities. According to The Economist magazine, the worst three countries in the world for billionaire enrichment from crony capitalism are Russia, Malaysia and the Philippines. In many cases, government regulation enables crony capitalists to exploit the public, rather than protecting citizens.

Authentic business generally makes sound economic and moral sense, whereas pretend business is at best a waste of time — and at worst a burden on the taxpayer and society.