seminar 2: cultural entrepreneurship · seminar 2: cultural entrepreneurship the newentrepreneurs....

A seminar held on

Wednesday 23rd June 1999

11 Downing Street, London

Seminar 2: CulturalEntrepreneurship

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inar 2: Cultural Entrepreneurship

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the newIf you would like to know more about The Smith Institute please write to:

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THE SMITH INSTITUTE

“I believe that the challenge to us is to create a society which is productive and

prosperous, but which shares its wealth with a sense of justice, in the knowledge

that it is not only a better way, but a more secure foundation.”

Rt. Hon. John Smith MP QC

(John P Mackintosh Memorial Lecture 1987)

The Smith Institute is an independent Think Tank that has been set up to look

at issues which flow from the changing relationship between social values and

economic imperatives, an area that was of particular interest to the late John

Smith, leader of the Labour Party 1992 - 94.

T H E S M I T H I N S T I T U T E

A seminar held on

Wednesday 23rd June 1999

11 Downing Street, London

Published by The Smith Institute

ISBN 1 902488 12 1

© The Smith Institute 2000

Seminar 2: CulturalEntrepreneurship

entrepreneursthe new

Preface

The Smith Institute has been set up to look at issues which flow from

the changing relationship between social values and economic

imperatives. The Institute takes its lead from the belief of the late John

Smith MP that social justice and economic progress can go hand in

hand, and it currently centres its work on these themes.

This booklet is based on the presentations made by Janice Kirkpatrick,

Jez San and Charlie Leadbetter during a seminar held on 23rd June 1999

at 11 Downing Street. We have tried to reflect the debate which

followed. Inevitably, in transforming a live event into print, some of

the colour and the texture of the original have been lost. We hope,

however, that those who attended the seminar will recognise much of

what is included here, and that those who read it fresh will respond to

the flow of good ideas which emerged during the morning.


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Rt. Hon. Chris Smith MP Secretary of State for Culture, Media and Sport

I am delighted to have been asked by The Smith Institute to open

this morning’s seminar on cultural entrepreneurship. The research

undertaken by Charlie Leadbeater is vital if we are to nurture and

support our cultural entrepreneurs. The emergence of the cultural

entrepreneur in the UK, within creative sectors such as design, film,

broadcasting, fashion and music, has been very marked. These are

industries which help to generate enormous wealth for this country.

The total value of these activities in the UK economy, as we found when

we carried out the mapping exercise which we published last December,

is something like £60 billion a year, with well over a million people

employed in these sectors. And perhaps most significantly, these

various sectors are showing a rate of growth at least twice that of the

economy overall. If we are looking to where a lot of the wealth of this

country is going to be created as we move into a new century, these

sectors are certainly very high up the list.

The importance of the entrepreneur within this setting was highlighted

in the Government’s Competitiveness White Paper and has a high

priority on the agenda of the Creative Industries Task Force which, at

the Prime Minister’s request, I have chaired since the election in 1997.

To encourage entrepreneurship, there must be collaboration and

sharing of best practice between businesses, investment in people,

skills development and, in the modern world, use of information

and communications technology. The government are introducing

mechanisms already, thanks in part to the work of the Chancellor of the


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Exchequer, to stimulate inward investment, to deliver training

opportunities and to assist businesses to increase productivity

and competitiveness in order to achieve sustainable employment and

economic growth.

Today our creative entrepreneurs not only need creative talent, they also

need business acumen. They need to be able to establish and then to

run a successful business. It has often proved difficult in the past for

them to gain access both to the knowledge about running a business

and also to the funds for establishing the creative project in the first

place. This is one of the first areas that our Task Force is keen to examine.

We are holding a workshop in the late summer, followed by a national

conference in the autumn, to look very specifically at the financial

problems facing new creative businesses. We want to identify possible

solutions and examples of best practice. The participants will be

leading figures from the creative industries, but also importantly from

the world of finance and business support organisations, bringing

together the worlds of creativity and the worlds of finance.

These are not the only things that the Task Force is looking at. There are

four other major areas that we feel need consideration.

First, skills development. We have already had a skills development

workshop in May to explore the nature and scale of the perceived

mismatch between skills supply and demand in the creative industries.

Are the people that are coming out, particularly from further and

higher education, equipped with the right skills that creative business

requires? We are taking forward the recommendations from that


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workshop in consultation with other interested parties, and will be

publishing our conclusions on that in a few months time.

Secondly, nothing is more important for this whole sector than having

secure intellectual property rights, because it is intellectual property

that is the added value in all of these creative industries. Making sure

that those property rights can be properly protected is one of the

crucial things we need to do. Our work on this is targeted to changing

the public perception of copyright as being anti-consumer, and

improving understanding of its importance. We have made a decent

start, I think, with some of our parliamentary colleagues, for whom

the very mention of the word ‘copyright’ a year or two ago would have

produced instant glazing over of the eyes. People are now gradually

beginning to accept its importance. We hope to publish a report with

guidelines and possibly have a publicity campaign early next year.

Thirdly, we need to ensure that there is a real export strategy for the

creative industries. The Creative Industries Promotion Advisory Group,

chaired by Charles Allen of Granada, has been taking forward, together

with the Foreign Office and the DTI, some very valuable ideas in this.

It will include information on the type of help available to exporters in

these various sectors, what is needed to add value to export effort and

who should be providing extra value. Again, we hope to publish later

in the year.

Fourthly, we have a tendency in some of these sectors to regard them as

being based primarily in London. Of course they are not. Although

London has great strength in these areas, the regions of this country,


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and the nations of Scotland, Wales and Northern Ireland, also have

enormous strength. So we are holding a series of regional workshops

from July through to September, leading to the publication of a further

report later this year. We are also taking forward the overall national

audit that we carried out of the creative industries, to ensure that we

have an audit, region by region, of the contribution of the creative

industries to their regional economies. With the establishment of the

Regional Development Agencies, that will be a very powerful tool to

ensure that there is a focus within the work of the RDAs on what can be

done to stimulate creative entrepreneurship in the regions.

In addition to all of this work, the task force is holding particular

specific enquiries. First, on the television programme supply market,

looking at how we can improve our export performance in television

programmes. We make very good programmes. Why can’t we sell more

of them around the world? Secondly, on the internet, on how it impacts

on the creative industries and its own nature as a creative industry of

itself, and on the wider impact of creativity, how the profile of the

creative industries can be maintained and how to develop them to assist

in the development of the social objectives we all have, as well as the

economic objectives.

There is a big agenda here that we in government have taken on and

want to push forward with, but this seminar, coupled with the other

seminars which are happening under the auspices of The Smith

Institute, will, I believe, give us very valuable insights into the way

in which many people in the field are thinking and how we can

progress this work even further. Thank you very much for giving me


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the opportunity to speak. I look forward to listening to all the

contributions this morning.

Case Study 1Janice Kirkpatrick

The Accidental Birth of a Design Consultancy

Graven Images was a happy accident that began fifteen years ago when

I went on to do a theoretical design degree after my first BA Honours in

the Graphic Design Department, in which I specialised in film. Instead

of going on yet another dull and boring industrial placement (I had

already survived a two week stint at BBC Television Centre, which I

hated - it felt like working for the regional council) I thought, through

complete naivety, that it would be a good idea to set up in business so

I had a job when I left. I went round the town together with Ross

Hunter, who is an architect and my co-conspirator, and another girl

called Adele Patrick, asking the city council and whatever agencies

were there if there was money available and how we could do it. So a

graphic designer, an architect and a fine artist set up together in

business. We received some help from a wonderful agency that existed

at that time called the Scottish Co-Operative Development Committee,

who set us up as a co-operative. This has since changed for other

reasons, but they were very good at hand-holding and showing us how

to make entries in books, etc.

We gave ourselves three years to find out if this experiment would work.

We had decided that we liked living in Glasgow, despite the fact that


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Ross had worked in LA and I’d worked down south and Adele had

worked in various places, because we wanted to prove that we could

work in a European model, we could work across disciplines.

Architects, product designers and fashion designers could, we believed,

work together because the creative process was common to every single

creative activity. It doesn’t matter whether you are designing a book,

a train or a building, the process of thinking and of evolving ideas

doesn’t vary. What does vary is the technical specialisms, and you can buy

those if and when you need them, or attach them onto your business.

As a result, we have 17 people working with us from a base in Glasgow.

They are interior designers, graphic designers, exhibition designers,

architects. We have a turnover in excess of £1m a year and we have

clients in the UK and abroad. We spend vast amounts of time in

London, because this is where all the work is in Britain. We design

things like corporate graphic work, corporate identity work, publica-

tions, signage, retail and workplace interiors, pubs, clubs, restaurants

and international travelling exhibitions. We work as curators; we write

strategy for other organisations; we help play an ambassadorial role

within Scotland as well, informing local policy and education. I have

had a long relationship with the education sector ever since I graduated,

through teaching and through working as an external examiner. I am a

Professor of Glasgow University and a Governor of the School of Art for

my sins.

The Rich Sources of Design

Design is about shaping and controlling experience. It is a hugely

misunderstood activity. It is not about fashion labels, it’s not about


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names and bits of clothing. It is a process that is about shaping and

controlling experience. We help our clients control their transactions

with their own customers and their own clients. Design operates at the

crossroads between art and commerce. It underpins intuition with

methodology, which we thieve from everybody and anybody.

Methodology changes from day to day. We can move quickly, and pull

in pieces of research from science, from arts, it doesn’t matter, anything

we need to prove that what we feel is going to work, will work. It also

legislates against too much risk. Risk is essential if you are going to do

anything new and anything different, but if you underpin intuition

with methodology, the risk is reduced.

We give culture a tangible shape that can be turned into business. Our

interiors, objects and publications are collectively created from the

backdrop of props and the dialogue in our national theatre. All

industries are cultural industries: not just ballet and art and design, but

every single thing. Even shipbuilding, although it’s dead in Glasgow, is

still part of the cultural industry. It crops up in shiny, titanic shaped

architecture in buildings. It is part of the folk memory. All nations

judge us on the quality of our theatrical performance. Everybody. That’s

why Britain is kicking just now, because we are moving so quickly,

we are a mongrel nation that does lots of different things at the same

time. People are fascinated by our culture, it is so rich. Where I live

is different from where most of you are in London. In Sheffield, it is

every bit as different. I don’t know how many local languages there

are throughout the United Kingdom, all of which inform, the shape of

our landscape, the way we talk, the way we speak, our typography, our

clothing. We are so rich, so lucky.


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Glasgow for me was a conscious choice. I had travelled fairly widely, but

I liked the place, because there is a memory there of what it was to be

‘the best’, ‘the very best’, and there is also a pride and the memory about

manufacturing. People in Glasgow don’t think a good day’s work is

when you walk into a service industry, they really value objects. They

like touching things; they like making things; there is a pride about how

materials come together which is absolutely unique. I have not been

anywhere else in the world where that exists, and you can use that

energy to reorientate people away from old industries and make them

interested in new product industries.

For Graven Images, our future is in consolidating our core expertise. It

is to become better at understanding and manipulating culture. Better

at making interiors, better at understanding people’s motivation in

wanting to purchase in one store rather than another, or to drink in one

kind of bar rather than another. That’s what we are good at. We are also

starting up new businesses with partners, usually ones we have met just

through the day to day running of the business. We are about to create

a new restaurant with a chef, Nick Nairn, who we did corporate

identity with. We are looking at the production of food, how that can

become a product which will again employ people within our area.

We are very interested also in developing the strategic planning part

of our business. We are very good managers, and that is a transferable

skill that we can take to many other industries.

Farming Creative Talent

At six o’clock this morning, I came up with four ideas. I hope you will

forgive their being drawn from the farming industry, which I don’t


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think is a very good basis for paradigms at the moment. They are called

Business Parenting, Business Breeding, Valuing Mongrels, and Looking

for Lost Lambs.

I think the practice of Good Parenting is an important one. You have to

get graduates and turn their naivety and energy and idealism into new

businesses. When you are a recent graduate, you have nothing to lose.

You have no cash. You probably have the concept of an overdraft, and

that’s a good thing to get used to if you are going to be in business,

because you are going to have one for quite a long time. Recent gradu-

ates also have great clarity of vision, and that’s what you need. Business

is something that you can’t really teach. Everyone’s business is different

from everybody else’s business. You can show people how to keep

accounts and how to do their VAT returns, but when it comes to how

you go about getting your business and working with other people,

every single business is different. What you do need are great energy

and tenacity. It is a good time to get people when they are young

enough not to have the clutter of families and children and other things

to worry about. You should get them then and give them the help and

support required to make their new ideas, their strange new things that

have no precedent yet in the world, into commercial reality.

You have to Breed Businesses. The way businesses are bred is through

bringing people together, people who might never otherwise meet.

Because the arts and the sciences are at the moment converging at a

rate we cannot keep up with, it is important that scientists and artists,

people who would never normally meet, are brought together to talk to

one another. If you have gone through a creative education, you have


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lots of transferable skills. The skills you use in presenting an idea to a

tutor are valuable when it comes to presenting a business idea. Your

skills in persuasion are very high when you leave Art School. Those

should be used. Scientists can use them. We share the same software, the

same hardware, we all work across Apple Macintosh platforms or PC

platforms, so the language has never been so familiar. We should use that.

We should also Value Mongrels. Because of this convergence, there are

lots of weird hybrid companies appearing which bank managers just

don’t recognise and won’t fund. The old categorisations of areas of

expertise are changing and this has to be reflected in education. At the

moment we are still producing graduates who are perfectly good at

working in one particular software platform. In typography it’s Quark

Xpress. You can learn Quark Xpress in three weeks: you don’t need four

years of undergraduate education to learn it. What you do want is a

chance within education to explore the outside edges of what is

happening within our culture, because the world is moving so quickly.

We need to be able to seize and recognise these special people who are

working in odd ways and use them and encourage them. The banks have

to be taught to recognise them. The people who fund people have to be

taught to recognise the value of difference. We ended up having to form

a property development company in order to make money to capitalise

our own business. It wasn’t hard to do, but it is inconvenient if you have

to do things like that, just to find money. It is a waste of time.

Lastly, I am going to ask the impossible and say, “Can you please Look

for Lost Lambs”, because the focus of the media is in London. I live in

Glasgow. People need to know what we do and it costs an awful lot of


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money to be here all the time. It has cost us a lot of money to come

down over a period of fifteen years and speak to these people because

they are too lazy to go north of Watford. I think that in the broader

sense, and I am perfectly serious when I say this, it is actually damaging

investment and growth in the north, because if a business isn’t visible,

you don’t know it’s there. If we don’t read about people in the press, or

see them on the television, they simply don’t exist. It is a much bigger

problem than people recognise.

Case Study 2Jez San

Two Companies Successfully Launched

I own and run two companies - Argonaut and Ark. Argonaut is a

computer game company which I founded whilst still at school in 1982.

It has had many hit games and several of those have sold over a million

copies each. Argonaut and Ark now employ over 200 highly skilled

people in North London. Both companies are growing fast.

Ark is a hi-tech intellectual property company. It licenses silicon

know-how to manufacturers of electronic devices. It’s the young

whippersnapper that competes with the multi-billion-dollar big boys

like ARM, based in Cambridge, and MIPS in Silicon Valley. Each of

those companies is worth $2 billion. Most electronic devices, whether

cell phones, digital cameras or digital television set-top boxes, will

contain powerful computer chips and, hopefully, Ark will be in one of

those. Since consumers own multiple devices and each one can contain


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multiple Arks, our potential for growth is very good. If things go well,

Ark will go public next year on NASDAQ.

Argonaut, on the other hand, is a computer games company operating

in an industry worth $10 billion to $20 billion a year, which is said to

be larger than the movie and music industries combined. There are

hundreds of game developers like us in England. Like music, Britain

develops and exports more than its fair share of games sold in the

world market. Developers make the games and publishers market and

distribute them. Games developers make their revenue from advances

and royalties from the retail revenue, just like the music business. A hit

game can generate hundreds of millions of dollars for the publisher and

a fair slice for the developer too.

One of our games, ‘Star Fox’, cost $1m to make and grossed over $300m

at retail, which puts the profit margins of the movie industry to shame.

Another of our games, ‘Croc’ - he is a cute crocodile - has sold over 2

million copies this year and is now being made into a television cartoon

by Fox. The sequel, ‘Croc II’, comes out in two weeks. Please buy it.

The Conditions of Growth

There are many developers in England but very few publishers. Maybe

it’s because of a lack of confidence in our industry by the financial

sector, so there is little or no investment in the business. Argonaut is

the exception that proves the rule. Perhaps the British finance sector

doesn’t think that games are serious enough, despite the fortunes that

can be made in the business. Many developers like us are publishers in

the making, or would be if they had access to finance.


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A successful developer has many problems to overcome. There are

set-up costs in getting an office, buying equipment, recruiting staff,

getting licences to make the games, and there are risks versus rewards

as in any business. Investing more in a game prototype to take it further

down the line will be more attractive to a publisher, and a publisher will

pay more for the intellectual property. Smaller developers can’t take the

same risks and may have to sell out cheaper to a publisher.

The talent pool is limited, since there are few formal qualifications that

are appropriate. Possibly the only computer games degree is taught at

Dundee University. Lack of skill and talent means that game companies

hire from each other, rather than from a new pool, and of course there

is the ‘brain drain’. Our people are so good that California pays them to

emigrate for double pay and triple sunshine. Somehow we need to find

ways of encouraging investment in the games business. We need to

educate our children better in computer skills, and especially the multi-

disciplines of art and technology and music that the games industry

needs. Coincidentally, the computer graphics and film industries have

the same needs, so we could kill two birds.

The French stock market values games companies much higher than

their British counterparts. For instance, Infragram and UB Soft are both

listed in France with P/E ratios of over 50, where similar companies listed

in England like Eidos have P/Es of only 10. The companies with the

high P/Es are able to acquire the other companies in paper for paper

transactions. Most of the British publishers have already been acquired

by their French or American counterparts.


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The government might be able to help. We need to raise the profile of

the computer game industry, encourage investment, help the industry

to plan better for its long-term growth, and encourage higher valuations

to allow our companies to compete more favourably with those in other

countries. British companies should not be disadvantaged because the

British financial markets are unimaginative and conservative. Perhaps

we also need tax breaks, development loans and guarantees, better

education to nurture a more talented workforce, sponsorships and

grants for students in our field, and incentives for entrepreneurs,

investors and professional management to encourage their participation

in hi-tech games companies: for instance, capital gains tax incentives.

I am very proud to be part of the computer game and silicon chip

businesses. As always, brains are Britain’s best natural resource. Unlike

oil, they are limitless. Our challenge is how to finance the computer

game industry before we lose it to other countries, like so many

industries before. A bit of investment and encouragement now will

go a long way to encouraging the growth of an industry in which we

already excel, but don’t own.

An OverviewCharlie Leadbetter

Why the New Independents Matter

The cultural entrepreneurs I shall talk about are called ‘The New

Independents’ in our report. My colleague Kate Oakley and I, drawing


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on the work of people like Justin O’Connor at Metropolitan University

in Manchester, have interviewed about forty of these cultural

entrepreneurs up and down the country. Focusing mainly on four cities,

Cardiff, Sheffield, Glasgow and Brighton, we wanted to work out what

it was that made them do what they do, why they were good at it and

where they came from. We also wanted to look at the environment

in which they operated, and at the part played by institutions like the

BBC, the European Commission, local authorities and so forth in

their creation.

I just want to share with you five thoughts about why what these

people do matters - why it matters outside these cultural industries,

why it matters to business and politics, and policy making in general.

The first reason it matters is Chris Smith’s reason, which is that these

people are a source of growth and jobs. These industries are growing

faster than other parts of the economy and it is where future employment

will come from. But it is also worth noting that some of these industries

are in the process of great turmoil and change. It is worth reflecting as well

that a huge portion of the growth is in self-employment, microbusinesses

and small businesses. That has some important implications.

Jez’s company is actually very large for this sector. Computer games has

bred some large companies, but often you find that companies that are

only 20 or 30 people strong are really quite large. The reason for that is

that it is very difficult to keep companies going beyond that scale when

the basis is a service model, where you get a management fee for

producing a television programme or a film or so on. Breaking beyond


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that level to base your business on a product is very risky. So often you

find that companies are trapped in that kind of band. They get to a

certain stage, but growing beyond it is very difficult.

Now does that matter? Does it matter that we don’t have more growth

companies, that we are not really generating many Disneys or Time

Warners or those kinds of companies? It certainly means that institutions

like the BBC and Channel 4, large established cultural enterprises, have

a very big and important role in managing this flotilla of small, self-

employed producers. But if the computer games industry (like

Argonaut) needs to be able to grow through several stages of

development and change, that requires, as Jez says, a much more adept,

agile and intelligent financial market and set of advisors. Those companies

will then be the source of spin-off companies which will feed the

industry in the future.

So growth is an issue, creating large companies, particularly outside

London - London is home to some of the biggest, particularly in

television production. How do we do that? How do we get the

necessary kind of expertise to these companies?

A New Model of Work

The second reason why these people matter is that they represent a

completely different account of the future of work. In the 1980s, there

were really three dominant accounts. One was Norman Tebbit’s:

“You get on your bike and look for a job”. It presumed a kind of open,

flexible, environmentally-friendly labour market. A second account

was André Gorz’s prediction of the end of work. Capital had become


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so sophisticated, so concentrated, that it didn’t need workers. A variant

of that was the core/periphery model: companies would focus

increasingly on their core and contract out to a periphery.

What many of the people in our report represent, and what, for

instance, Janice did, is really an idea of ‘workers without capital’. This is

a completely different account of what you need to start earning your

living. These New Independents offer a new model, which is based on

self-employment. Independence is central and fundamental to what

they do. This is being driven by three factors.

The first is that all these people value independence. They prize

autonomy, choice and freedom, and they want to express themselves

through what they do at work. So they value independence; they are

freedom’s children. They all grew up in the 80’s under Mrs Thatcher

and they have imbibed a lot of those values of independence. Secondly,

they are the first generation to really understand and benefit from the

explosion of computer and communications power. They feel enabled

by it, not threatened by it. There are lots and lots of people up and

down the country with a couple of computers in a room, hoping to

create the next internet product, or the next computer games company.

Technology is lowering the barriers of entry. And thirdly, economics.

They came into the jobs market at a time when large companies of all

kinds were downsizing.

So technology, values and economics all encouraged them towards a

form of self-employment. As a result, they have quite an interesting mix

of values, which Janice showed in many ways. They are certainly not


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into the poverty of genius. These people are not existential artists

working in their garrets. They want to make money. They recognise

commercial imperatives. They are at the meeting point of commerce

and culture. But they are not ideological about the market, they are

quite pragmatic about it. They recognise in many ways that their

skill has to be tested in the market, so they are very suspicious of

public subsidy. They don’t want public interference. They don’t go

around looking for public money to keep them propped up. They

accept the need for working in the market, as the best way to allow them

to continue to pursue what they are doing.

They are sustained in that partly by the acquisition of skills as they go,

but often by a kind of passion, an obsessiveness, a single-mindedness,

which is bred often when they are quite young. This bears on the

question of Business Schools. When I was in Glasgow, I went to the

Glasgow School of Art and interviewed the Principal and said, “Why

don’t you teach most of your undergraduates some skills about being

self-employed, because most of them end up doing that?” He said,

“There is absolutely no point in doing that even though that is what

most of them end up doing, because all these people want to be

Kandinsky and Picasso, and the thing that is going to keep them going

is wanting to be Kandinsky and Picasso.” That is the most important

thing, that kind of passion, vocation and drive.

This has a large number of policy implications, but let me just spell out

one very big thing, which is that most of our policy making, most of

our policy thinking, most of our institutions, are organised around an

economy of jobs. They are about educating people for jobs, training


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people for jobs, finding people jobs, getting in investment to create

jobs, subsidising jobs to save them, regulating hours that people work.

But the New Independents don’t work in a jobs economy, they work in

an economy of self-employment, where things like the 48 hour working

week directive make absolutely no sense. They want to make their

own future. This is not a jobs economy, it is an economy of self-

employment. It is a model of the future, and one which will apply also

to large companies. The more that the key assets of companies are the

intellectual capital of the workers involved, or the key knowledge

workers, the more that big companies will have to adapt to models

which are more akin to self-employment. So this is why these people

represent a future of work which is quite different from the account of

the 1980s.

A New Model of Production

The third reason why the New Independents matter is that they

represent a completely different approach to production as well. These

people are involved in the commercial application of creativity, and the

more that that becomes critical to large companies, the more that large

companies can learn from the creative and commercial processes that

these people engage in. They have some important things to tell us.

The first is that they don’t recognise a very neat dividing line between

consumption and production. If you are going to be a good designer,

you have to consume a lot of design. If you are going to be a good

computer games programmer, you need to consume quite a lot of

computer games. The corollary of that is that what you do outside work

has a considerable bearing on what you do in work. Often these people


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have their best ideas, not when they are at a computer terminal, but

when they are away from it. So valuing, if you like, redundancy, free

time, time outside work, is very important to the creative process. That

is very difficult to do when you are in a large organisation. It is one

reason why they favour self-employment, because when you are in

charge of yourself, you can be in charge of your time.

As well as having highly independent values, they also have instinctively

collaborative working practices. They are used to working in teams

together, forming teams that can complete complex projects. So as well

as being independent, they are collaborative. They are often brought

together by cultural intermediaries to combine in those teams. This

mixture is increasingly important, and it is the model that large

companies are going to have to look at.

A key issue, however, for a lot of these companies is that they are very

fragile and weak, often under-capitalised and under-resourced, with

very little management. And as Jez says, in a lot of these industries,

the power is in publishing and distribution. So you see many small

producers throwing themselves at the market. How we build a stronger

publishing and distribution industry in this country is a critical issue,

particularly in areas like computer games. It is all very well having a

lively cultural scene, but that does not create a lively and thriving

industry.

Reviving Cities

The fourth reason why the New Independents matter is that they are

critical to the future of our cities. These kinds of producers tend to


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congregate in cities. Not exclusively, but they tend to. Cities have had a

huge pounding over the last two decades and have continued to lose

jobs in all sorts of ways. This is one of the main ways in which cities can

be revived and can find a new role.

There are three aspects to this. One is the creation of jobs. They

generate jobs, not just in these industries, but in related industries like

tourism and leisure. The second is that they are important to social

cohesion, because culture is an important aspect of social cohesion in

hugely divided cities. If you can share a common sense of cultural

activity and cultural experience, that is part of what cohesion is about.

So one of the critical questions about these new industries is, are they

simply a shell, for a middle-class graduate elite, or do they have a

capacity to extend their reach, not just in terms of job creation but also

in terms of their products more broadly? Thirdly, they are vital to a

sense of civic pride and civic purpose. The most outstanding example

of that recently is the amazing transformation in Bilbao’s reputation

and standing which has come from a single investment in a cultural

asset, the Guggenheim. A high risk act of civic entrepreneurship has

completely transformed the way in which Bilbao is seen.

The best example in this country of that strategy developing over

a period of time is Glasgow, but it means that the kind of cultural

entrepreneurship that Janice is engaged in there depends, in a sense, on

a complementary kind of activity at a public level. The capacity of

councils, political leaders and others to take that kind of risk is very

important. I am sure that the national rugby stadium in Wales will be

very, very good, but I am also sure that it won’t have as big an impact


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on the reputation of Cardiff as building Zaha Hadid’s opera house

would have done. Culture can create a reputation for a place that other

investments can’t.

Holes in Policy-Making

The final reason for thinking that the New Independents are important

is that they expose a huge kind of policy gap. Here we have a process of

adaptation and change led by entrepreneurship, often amongst young

people, who have no clear institutional voice. They have no ‘home’.

They are not represented by the CBI or the IOD, or by small business

federations, and yet they are creating jobs at a rapid rate. Policy making

is outpaced by that. Policy makers and public institutions don’t know

how to respond, they don’t have the capacity to learn, they don’t have

the capacity to intervene. Traditional tools of subsidy through arts

organisations or small business grants don’t reach these kinds of

entrepreneurs. Business links advisors can go to these kinds of people

wearing their suits, but they are simply talking a different language.

So here we have a growing industry, and a public policy machine which

is completely ill adapted to deal with it. It requires considerable

adaptation. If you go to Glasgow, which has a reputation for thinking

strategically in this area, it is only recently that the economic bit of

the council and the cultural and leisure bit have started talking to

one another. It requires organisational change, but it also requires

considerable innovation in policy tools.

There is a huge agenda here. These are impressive, interesting

industries. As Jez said, if you look at computer games, it is on a cusp,

and it is on a cusp that many British industries have been on before -


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the textiles industry, for example. It’s being bred entirely without

public policy. Almost by chance, we happen to have a world class

industry. To take that forward, so that it will remain competitive in the

future, now requires an engagement with financial markets, business

advice, broadcasters and publishers, and the government which will

be very demanding. Whether we are up to that is a test for the next five

to ten years.


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Discussion

An Exit Route for Venture Capital

Ian Stewart

A number of things have been said this morning about the relationship

between the creative sector and the financial services industry. As

somebody who straddles both, I can offer one reason why, in the short

term at least, investors in this country are going to be reluctant to invest

in the early stages of creative companies. I became involved in a project

in 1988, a company called Wired Magazine in the US and its related

digital products. In three weeks time, I shall finally be able to get out of

it in terms of money. That is eleven years, a long time.

The average venture capitalist (insofar as they exist in this country,

because there are few real venture capitalists here) requires an exit in

three to four years. That’s what they tell their investors. Companies like

computer games companies, internet development companies, many of

the companies we have started to see here in the last twelve months,

are going to need deficit funding for quite some time, because their

marketing and development costs are expensive. The market in the UK

is developing; in Europe it is nascent. We don’t have the same home

market that the US has in the internet space, which means that any new

company is not likely to be profitable for at least three, four, maybe five

years, depending upon the level of growth you are expecting. In that

time frame, no venture capitalist will go in, because they can’t get out.

If you move into the US and set up a subsidiary there, they might try a

launch on IP or NASDAQ, but there is no satisfactory exit route in this


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country. The German Neuer Markt has a problem with second round

financing - in Germany, if you launch a company on the public market

and you go back in two years, they are astonished that you need more

money. Until we get used to the sort of nine month refinancing cycles

that happen on the west coast of the US, very few investors are going to

want to go in. I have a slightly longer timescale, but then I don’t report

to anybody else.

One more comment: my biggest problem in trying to found companies,

either as an entrepreneur or as an investor, is locating business-literate

creative people. There is a very strong division between courses in the

UK. In the US, almost every creative course has business electives. We

should go even further. All creative courses in the UK should include a

short, compulsory business course, giving some sense of what it means

to raise money; what it means to be a sole trader versus a cooperative,

or a small limited company, or a plc; what types of relationships

businesses need to have with bankers, suppliers or customers. Some

people say that business can’t be taught, but I think some of the

grounding can be given in creative courses. If there was more of that in

this country, I’d find more people to back, to invest in and to make grow.

Why Britain Lags Behind the US

Lord Puttnam of Queensgate

The danger of a seminar like this is that we forget that there are no

surprises here. We were discussing the same things five years ago, and

ten years ago! One of the core problems is a kind of ludicrous cultural


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inflexibility. For example, the major universities took at least ten years

too long to understand the value of the MBA and in fact actively

resisted their introduction. The LSE still doesn’t have one. There is no

reason why you can’t put a London Business School module into every

Design school in the country, other than a kind of inbuilt institutional

resistance to that.

More importantly, I want to discuss the issue of capital. Robert Reich

has written about the astounding growth of capital as opposed to

income in the last twenty years, and it is this capital growth that has

been driving the United States. What we need to do is find an original

route of getting capital to interesting and ambitious young people very

early on in their careers. We obviously cannot rely, I am sorry to say, on

the financial institutions of this country. They don’t get it, and there’s

no sign that they are even beginning to get it.

It’s no accident. We pride ourselves in the most extraordinary way on

our own investment climate and our own financial acumen, but the sad

truth is, British banks have died on their feet in the last twenty years,

whilst the American ones have grown exponentially. It is absolutely

clear that we are doing it wrong, but there is no acknowledgement of

this. There is still a neurotic defensiveness in the City. We do not have

the relaxed investment climate which creates access to capital. We do

have massive capital resources which are invested worldwide through

pension funds and institutions, but they are dividend focused, not growth

focused. US investment is, for the most part, a start-up focused community,

they know that’s where real growth comes. Therefore the average portfolio

in the US contains a high risk element, which is focused on start-ups.


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Lastly, we do have a cottage industry culture which is creatively

focused. That’s not bad. The difference is, the US has a marketing and

distribution focus, because they have understood for years and years

that you can buy creativity. You can literally shop around the world

for creativity. What you can’t buy is sophisticated distribution and

marketing companies, and it is these distribution and marketing

companies that own the brands, and it is the brands that carry the

long-term value. So again, we are completely vulnerable because we

are not building value in the areas where we need it.

Response: Jez San

Eleven year exit - gosh, I’ve never heard of that in my industry. An

average computer game takes eighteen months to make. If it’s good,

it can be profitable within two years. If you have two games, you

probably have a fantastic track record. Certainly my company probably

has had nine-month venture cycles, but as I mentioned, we are one of

the exceptions. I think if venture capitalists in England are thinking that

there is an eleven year cycle before they can get an exit, then that is the

wrong way of thinking. Whether it is technology or computer games, if

it is done right, it is profitable in two or three years and you can get

your exit, and even with multiple venture finance there is a good chance

they might get everything out.

I agree wholeheartedly with Lord Puttnam. I think it is lack of access to

capital that is the problem in my industry, certainly in Britain.

American companies can get financed just by being in America. The

British companies, as far as I am concerned, have got the right skills,

but we just don’t have access to the capital.


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Response: Janice Kirkpatrick

On the question of business education, I think is absolutely vital and

should be happening at primary school, never mind as an add-on.

I resent the fact that I had contemporaries who left school with thirteen

years pre-understanding of the area they were going on to study at

university, yet I had to go on and do an honours degree with absolutely

no pre-understanding in my subject area at all. When I am learning

about that, I certainly don’t want to waste time having to worry about

business studies.

When I left school, I felt incredibly resentful that I had no idea how the

world worked politically or financially, when these are the two things

you need if you are ever going to be in control of your life. You need to

understand how society is structured, what the purpose is of the vote

and freedom of speech and all those kinds of things, and how you go

about controlling your own finances and your own freedom. If you

don’t have that, then what’s the point?

A View from the Regions

Stephen Hill

I am interested in prosperity in the regions and I would particularly

like some big ideas about how we can influence what appears to be a

very delicate process in moving from ideas to tradeable products and

services. How can we impact on that process at the very time it is

happening, with the very people that Charlie rightly describes as

independent? And secondly, how can we keep the benefit of this creative


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success in the locality, and prevent the nationals and the multinationals

from appropriating that benefit and moving it back to London?

I congratulate Janice on staying in Glasgow, but I would guess that

for every Janice, there’s a whole bunch who have succumbed to the

transaction costs and moved to London.

A Lifestyle Business or Not a Lifestyle Business?

Lucy Kimbell

I’m from a mongrel microbusiness called Soda. I wanted to follow up

the point on venture capitalists. Most of the time we are presented with

this option: either you’re a lifestyle business or you’re not. There is

a gap in the conception of what it is we do. It often works through

splitting off and forming other little microbusinesses, with a lot of

movement between them, and some people may then go off and become

product based companies which require venture capital. But there

needs to be some filling of the gaps. For example, when we started three

years ago, we went to see some Euro quango person who had money for

innovation. He said, “OK, what are you? Are you a lifestyle business or

the other? Tell me now.” And we didn’t know, because we just wanted to

get on with it and see what we could do. Yes, we can write business

plans, but there is this sense of drive we have all been talking about,

which this guy couldn’t get his head round, nor could the bank

manager.

We’ve managed to survive, and we prefer to stay a lifestyle business,

but that doesn’t necessarily mean, just do OK. We have vision and

excellence and good products and services. We do have things which

might spin off into the venture capital model, but with the choices

that are available, it is difficult at the moment. The key issue is this

either-or approach from the bank manager or potential funder and us

not fitting easily into it.

Transfer Fees when Trained People Move?

Albert-Marin Catterall

I work for Scoot.com as an economist for its new media and internet

firm. We make content or information, but we came up against

problems in getting it distributed. The solution was buying our

own distributional channel, taking us into call centres, net servers,

interactive TV ventures, but this is not quite what we want to do, we

want to be creating content.

I was always taught that a company is a kind of economic failure. It’s

where people can’t perform very well as individuals through the

market, so they set up a kind of Soviet style planning in a company. But

nowadays you often don’t have a formal organisation, or if you do, it

doesn’t have a head. In fact, something that has inspired me is the

passion and joy people have in creating something. But that leads on

to training: if you are not going to reap, you will not sow. I wonder

whether it would be an idea to have football style transfer fees, so that

if you train someone and they move on, you can get back what you

invested.


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Three Main Problems: Distribution, Business Skillsand the Gap in Understanding

Chris Smith

It seems to me three themes have emerged from the comments so far.

First, the need for the creative side of a particular enterprise to have

access to distribution, to the ability to market that creative product, and

that isn’t always easy, particularly in sectors where the publishing and

distribution networks are dominated by key players normally based in

the US. Secondly, the need for the development of business skills for

creative people, and that is something which the formal education system

can and should be doing something about, but we need, I think, to look

beyond the formal education system for the full answer to that problem.

The third issue, however, seems to me to be the dominant one that

people have raised, and that’s the whole issue of the gap of understanding

between venture capital and creative entrepreneurs, and the difficulty

of bridging that gap. This is precisely the area that we are looking at in

some detail now with the Creative Industries Task Force. The answers

aren’t easy. There are no obvious handles that you can pull, but it must

be possible to move gradually towards a better picture, because it

happens in other places. The US is a very clear example of this, and we

need to get the investment sector in Britain to understand better about

the nature of risk in cultural enterprise and more comfortable about

how and when and in what form their return is going to come.

Venture capital rightly wants to know what’s in it for them. They are not

doing this out of the goodness of their heart and getting those two


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things to connect is something that I very much want to put quite a lot

of time and effort into producing at least some hint of a solution, over

the next few months.

A Place for Co-operatives?

Peter Slowe

I run a company called Teaching Abroad which employs about 35

people. Our strength is based on the hegemony of the English language.

We send teachers abroad and bring young people to the UK. The

problem we’ve got in this climate, as a creative business, is in creating,

or developing, or nurturing entrepreneurship amongst people in their

twenties who are taking responsible positions in the organisation.

What strikes me as we get bigger is the confines of the conventional

structure of the company. To raise finance, we have to be absolutely

conventional. Yet Janice mentioned that she got money from the

Scottish Co-Operative Development Committee. We have talked about

collaboration, participation and co-operation, but you can’t raise money

if you have that sort of organisation. I just wondered if the government

are still interested in co-operatives or some sort of alternative corporate

governance.

Better Access to the Internet

Janek Alexander

We support about 50 small microbusinesses. It seems to me one


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difficulty lies in bringing together the perspectives of the individual

arts entrepreneur and the venture capitalist, who is looking for product

growth on an industrial scale. Also, the whole question of how you

intervene is very tricky. The computer games industry is on a cusp, and

the computer industry has been there before. But there is one thing

that’s new since ten years ago, and that’s the internet. The internet

offers the individual the same access, at the same time, as the major

corporation. Before the internet, you could develop a computer game in

your bedroom at home and then offer it to a games software publisher,

but you didn’t have the same access to the world as the big corporations

had - you had to fight for parity. With the internet, someone at home

can have the same access as a big corporation. This is a major change,

but Britain is lagging far behind. The government has been concentrating

on things like encryption when it should be concentrating on giving

people better access. One of the biggest problems we have in this

country is British Telecom.

Riding the Waves of Change

Simon Waterfall

I would just like to stress the importance of timing. I was lucky enough

to ride on the crest of a wave, when technology, entrepreneurialship and

creativity seemed to pick us up and lift us forward. Where government

and finance have a responsibility is to catch and support people when

they have missed the wave or, if they spot a wave coming, to pick people

up and boost them. If I was to set up another company, it would not be

in the internet sector at all, because you now have to be absolutely


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amazing to stand head and shoulders over everybody else, and the people

in need of support are those companies starting up, who have missed

that wave. But there are these waves happening all the time - waves of

education, waves of finance, waves of creativity and culture. It is when

a few of them coincide that you get the massive surge forward, so we

have to watch out for them.

Small Business Finance

Martin Freeth

Charlie suggested that neither Jez nor Janice would want to accept

public money. However, there are a number of bodies, including

NESTA (of which Janice is a trustee) and many government and non-

government departments, who have small amounts of Lottery money

and public money to distribute. I would be very interested to know

what both Janice and Jez feel is the right way to use this. In terms of

their own careers early on, what sort of contribution from such bodies

would have helped them most to get to where they have got?

Jonathan Charkham

I very much agree with Chris Smith’s point about the financing

problems. As he will know, the Bank of England has been looking at this

for years and when he does his studies there are, I suggest, two rocks

you have to steer around. The first is simply the cost of monitoring. It

actually costs a great deal of money to lend small sums of money, as

much as it does to lend larger ones. What you can’t do and don’t want

to do at that point is to pass the economic costs on to a small emerging


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business, because they just can’t bear it. The second problem is the

question of independence. The reason why people go into small

businesses is precisely to be their own bosses and because they want a

part of the equity, so the difficulty is how to finance these businesses

and still leave them in charge. We need some kind of very imaginative

solution to this problem of how you get equity finance without the

proprietors, as it were, losing control.

Response: Jez San

The only way to do that is to have high valuations of the companies

so that the venture capitalists leave something on the plate for the

entrepreneur. I was lucky in that my company had been going a

while and I had grown to a certain point before I refinanced, and

consequently I kept most of the pie. I know friends of mine in different

situations where the venture capitalist owns 80% or 90% of the pie and

that doesn’t leave very much on the plate for the entrepreneur.

On Martin Freeth’s question, if I’d had finance from somewhere when I

was starting out, I could have taken more risk on my own and

developed my first game far enough to sell it to a publisher for a higher

piece of pie. In short, I cut my teeth doing games for other people,

making a smaller piece of the pie than if I had been able to stay

independent. I am sure it is the same with many other people in my

industry and other industries. A little bit of capital will go a long way

towards building the business.

Response: Janice Kirkpatrick

When we set up Graven Images, we got three regional development


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grants of £3,000 each, and a discretionary grant from Glasgow City

Council because we were a co-operative, which was enough to sustain

us for the first year. It was more money than we had ever seen in our

lives before, so it felt great, but they were all stupidly small pieces of

money. At one point we were actually in discussion with the regional

council about the possibility of setting up a furniture production

facility in Glasgow, and the minimum grant they were willing to give us

was £1m. It was either £10,000 or £1m, there was nothing in between.

In my experience, it is quite often the small amounts of money that

you need, but they are actually very difficult to get. The banks don’t

want to know about a loan of £3,000.

What would help now? Now is less of a problem, because we have got

capital, and we have got ways of raising money ourselves if we want

to. I would be reluctant to share with anyone a slice of my business.

I wouldn’t give anybody equity in my company, because that’s my

motivation for getting out of bed in the morning, and I would rather

live the life I really enjoy than create an awful lot of money for

someone I really couldn’t care less about, whose values I simply didn’t

share. So I’ve no intention of getting huge, but I think that it would

have been useful to have time to pause and reflect on what we have

learned and maybe to package that information in a form that

could be useful to someone else. I would be very happy to become

involved in education and to help to write the curriculum needed,

so that I could use the experience in a positive way. Money could

be a useful way of achieving this, to allow taking time out to do that,

covering my position.


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Response: Jez San

Can I just add something? Argonaut, my company, was a lifestyle

company for many years. When I started it, I grew it organically, and

I was doing exactly the same as Janice. I didn’t want to let anyone in.

It was mine and I was going to grow it myself. The last few years,

I changed my mind and brought in venture capital and I am very glad

I did - I should have done it a long time ago. Access to capital has given

me so much more freedom to do what I wanted. Venture capital is great,

but the valuation is the question.

Chris Smith

I just wanted to pick up on the point that was made about the difficulties

of monitoring and the whole issue of independence. Part of the solution

is trying to find a new method of engagement between the venture

capital and the entrepreneur which allows capital to make a return

and to have some degree of security against the risk, but doesn’t involve

taking a great chunk of the equity of the enterprise, thereby potentially

killing off the creativity. Trying to find that new mechanism and

thinking imaginatively about how to do it, I think, is where the

solutions may lie.

People are Fundamental

Eric Salama

WPP are probably one of the largest marketing services companies in

the world. We have invested in about 30 or 40 start-ups in the last few

months. I have a different take on the valuation issue. It is not, I think,


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to do with access to capital, or valuations. We are valued lower than our

American counterparts and that is largely to do with the fact that

most UK quoted companies went through a bad phase during the

last recession. We are cyclical industries, and we are seen as cyclical

industries in the UK, whereas in the US they managed the recession

much better. They are seen as growth stocks.

We invested in Wired years ago and we also only got out this month.

It had nothing to do with fundamental problems with the venture

capitalist, it was the fact that the management was arrogant and poor,

and screwed up the flotation four years ago. So we shouldn’t get too

hung up about some of those things. There is a very active debate in the

States at the moment as to whether the American money going into new

companies is actually a good thing or a bad thing, because most people

are putting money into companies, and people are starting companies

not just to build them, but just to sell them on. They are not really

creating any wealth.

I think the venture capital issue is much more complex than simply the

UK is lousy and the US is great. Starting from that point of view, the

much more interesting issue which Charlie, Janice and Jez all touched

upon is the people issue, because it is fundamental. When Jez says we

are losing people to California because they can pay them stock options

and twice the salary, that is a fundamental issue. When Janice says we

don’t need education establishments to train people in Quark Xpress

because we can do it, that is a fundamental issue. When Charlie talks

about the fact that there is a much more freelance economy and

therefore the BBC and others are not training in the same way because


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they are not holding on to these people, that is a fundamental issue. The

issues that are really important are the people issues and how we retain

them and how we train them and give them the skills.

Changing the Accountability Framework

Peter Hewitt

I am interested in this question of how public subsidy can be made

relevant to cultural entrepreneurs. We are reflecting a lot on this at the

moment and my perception is that bodies like the Arts Council have to

change their mind set from one which is dependency based to one

which is investment based. I think we are reasonably ready to do that,

but this is a big issue which we need to discuss with the government,

with particular reference to the government’s accountability

requirements. I think that government and bodies like ours need an

agreed change of approach, allowing much more of a risk based

approach to supporting cultural entrepreneurs than is possible in the

current accountability framework, which is fairly tight and defined.

A Flexible Approach to Learning

Bob Gregory

I absolutely welcome the comments that have been made here this

morning about the need to change what we are doing in education and

to look at our education systems and values. A very important comment

was made about the need to emphasise informal learning in addition to


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the formal learning, with opportunities to encourage these ‘bright

sparks’ that Janice spoke about. To give them the independence, to let

them find a voice, to give them ownership, to widen their horizons, to

encourage their creativity, and so on. A small step in the right direction

is the government’s drive to promote out-of-school-hours learning and

the use of Lottery money to do that. It is so important that we monitor

that, because I hope it will impact on the whole of our education

provision, and I look forward to seeing how it develops.

Justin O’Connor

In a recent survey we found that only 1 in 10 people in the cultural

industries had a specific creative education, whereas 70% had higher

education. It is obvious to us that people are learning at a very informal

level how to deal in this world that we have heard about this morning.

The problem with business education is that, for the vast majority, they

don’t get it. It is difficult to bring it into a curriculum until they begin

to see that this sort of knowledge is potentially valuable.

The other issue about offering business education whilst in college

is how we make the HE and FE sectors flexible enough to actually

underpin these activities, especially new start entrepreneurs. Things

happen fast so they need non-linear courses, they don’t want to go on

an eighteen months course on entrepreneurship. They have got to get in

and get some knowledge very quickly. Also, they fail. One computer

game or one record, great; the next one you bomb. You are only as

good as your last hit and you have to be able to go back into an education

system. So in short, we need a much more flexible system of training

and business support structure and it doesn’t really exist at the moment.


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