ENTRPRENEURSHIP AND GROWTH
By Basil Springer
“These are not proposals intended to raise revenue or to bear specifically on the public finances. Rather, they represent the principal and financial measures the Government proposes to deploy to steer the course of our economy and to further stimulate national development over the foreseeable future” – Extract from Barbados’ Prime Minister Arthur’s 2004 budget speech on December 07.
To prosper in an increasingly competitive global economy, it is vital that small states like Barbados develop an enabling environment for entrepreneurs through economic development and other policy vehicles. Prime Minister Arthur, in the 2004 Financial Statement and Budgetary Proposals has spelled out his supportive environment for the entrepreneurial culture. It is now up to the private sector to ‘do business’ and ‘make it happen’.
The basic ingredient which will lead to this growth and prosperity is entrepreneurship. Other important ingredients in the recipe are the right portions, quality and quantity, of leadership & management, marketing flair and innovative financial instrument.
Recently several entrepreneurs who are in search of assistance in developing their ideas have approached CBET. CBET is concerned with ideas that can be turned into commercial realities and contribute rapidly to economic growth. These ideas must therefore have the ‘DNA of an elephant’ which is supportive of this rapid growth. It is to be contrasted with projects which have the ‘DNA of an ant’ which instead of leapfrogging along the development spectrum, they are constrained more to a ‘snail’s pace’ scenario. There are other institutions which address the projects with a more modest growth potential.
CBET is currently holding discussions with four entrepreneurs who presented ideas with the DNA of an elephant. CBET is doing its best to give them the support that they need to take these ideas along a path to sustainable development. CBET is expected to be a financially self-supporting organization. However, it will need further sponsorship from the public and private sectors to provide the necessary permanent subscribed capital, through innovative financial instruments, to expedite its expansion throughout the Caribbean.
All four businesses admitted that whereas they regarded themselves to be very knowledgeable in operations associated with their idea, they were woefully weak in leadership & management, marketing flair and financial capital. CBET is designed to fill this gap through it seven drivers of business success.
Leadership is about doing the right things or creating a formal vision for the organisation. Management is about action and implementation, about doing things right. It is often said that there are three reasons for business failure which are ‘lack of management, lack of management, lack of management’.
CBET has observed that these four businesses, even though in different economic sectors, all have similar basic management needs and hence their physical location in an incubator setting will facilitate their progress. The Future Centre, a holistic sustainable development organisation, is in fact offering physical space to these entities.
The ability to leapfrog in the context of economic growth implies access to the global market which in turn requires a significant marketing flair to be available to the emerging businesses.
It is reported time and time again that there is high liquidity in the Barbados market and this may be true elsewhere as well. The financial loan instrument coupled with hard collateral is the predominant bond between entrepreneur and financial entity. But alas, hard collateral is required and the idea does not live to see the light of day.
In Barbados, there are two institutions that offer equity (shares) financial instruments in contrast to the loan instrument. These are the Barbados Investment Fund and the Enterprise Growth Fund. The ‘collateral’ taken in the context of the equity instrument is good leadership & management and marketing flair.
A company may have many different types of shares that come with different conditions and rights. There are four main types of shares: (1) Ordinary shares are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk; (2) Preference shares typically carry a right that gives the holder preferential treatment when annual dividends are distributed to shareholders. However, usually they have rights to their dividend ahead of ordinary shareholders if the business is in trouble. Also, where a business is wound up, they are likey to be repaid the par value of shares ahead of ordinary shareholders; (3) Cumulative preference shares give holders the right that, if a dividend cannot be paid one year, it will be carried forward to successive years. Dividends on cumulative preferred shares must be paid, despite the earning levels of the business; and (4) Redeemable shares come with an agreement that the company can buy them back at a future date - this can be at a fixed rate or at the choice of the business. The company can, of course, be innovative an offer varaints to the above.
In the 2004 budget debate, I understood one speaker as concluding that Barbadins do not like equity instruments and prefer loans. In my opinion, if we perpetuate this myth this is one sure way of retarding the growth of the country.
(Dr. Basil Springer GCM is Change-Engine Consultant, Caribbean Business Enterprise Trust Inc. (CBET) - http://www.cbet-inc.org