Start-ups and a new age for governance

As a record number of businesses launch in the UK, the need for good governance for start-ups has become increasingly important. This article explains why strong governance should be a priority at the outset of a new business and not an after-thought.

The UK’s entrepreneurial spirit is, it would appear, healthier than ever. Far from being brow-beaten by the global COVID-19 pandemic, Britons have used the most recent lockdown to inspire their dreams, resulting in a 19% increase companies created in the first quarter of this year compared with the same period in 2020, according to Virgin StartUp.

In May, not-for-profit entrepreneurial hub Virgin StartUp released new research to celebrate funding its 4,000th founder, revealing that one in three Brits dream of becoming an entrepreneur and would like to set up their own business. According to the study, approximately two million people have started a side project during lockdown, with one in five launching from their living room, and a further one in seven setting up from their bedroom.

From May of last year onwards, the average number of businesses set up per week across 2020 was 30% higher than the same period the year before, jumping from 12,446 in 2019 to 16,157 in 2020. An average of 15,751 businesses set up in Q1 this year, up 19% on the same period in 2020.

In terms of Corporate Governance for start-ups, the way businesses are formed and bring their products or services to market has changed, and indeed was changing pre-pandemic. Historically, companies typically formed as mini-versions of the large companies to which they aspired, complete with management structures, offices and capital and infrastructure costs. They also tended to spend a lot of time and money on R&D, only going to market once they had perfected their wares. Now companies live test, learn and come back with the next iteration, repeat and move forwards.

That slimmed down model often means a pared-back management set-up too, structured to embrace external support to complement in-house skills and to access the best people for the jobs that need to be done. Inevitably, lean and fast-moving companies are far more reliant than ever on advisers, external experts and specialists to help them steer their strategies and ensure that they comply with legislation, adopt good governance and good practices.

Good Governance for start-ups: The priorities

But let’s be honest, establishing governance best practice for start-ups is hardly likely to be top of a founder’s to-do list, with so many other elements to focus on. It is all-too-easy to park governance considerations for such a time as when the company is larger and feels it has more need for it.

This is the wrong approach. Rather, it is advisable to address governance as soon as possible and to continue to make it a core focus, because good governance requires that the right culture, policies, procedures, leadership and communications are in place. Starting right is much easier than changing a poor culture, as the recent travails of fast fashion retailer Boohoo, which lost control of overseeing its supply chain, demonstrate.

Financially, it is worth remembering that good governance is also important if a start-up is looking for investment, because it is a factor that investors will take into consideration. For example, Deliveroo’s IPO underwhelmed in part because of the reluctance of institutional investors to invest in a business where many questioned its employment practices. Good governance reassures that a business is well-placed for the future and has forward-thinking management.

How to implement good governance

The implementation of good Corporate Governance in a start-up requires learning and improving along the way. In the often-frantic environment of launching a company, Governance seldom receives the attention it merits, as a start-up deals with a multitude of business challenges and choices.

However, in terms of setting priorities, balance is essential and Governance structures play an important role in this process. Encouragingly, a recent article in Forbes.com suggests that attitudes to governance are changing, with more start-ups prioritising the need to establish firm foundations.

To achieve this, the first consideration is balancing the short- and the long-term and not concentrating solely on the former.

The second is to manage the interaction between founders – who are unlikely to have started their company starry-eyed at becoming specialists in Corporate Governance –  and external stakeholders. This should be taken into account empathetically in forming the Governance structures.

In practice, this means balancing a creative, entrepreneurial atmosphere within the company with proper systems, encouraging ‘creativity with purpose’ to allow entrepreneurship to flourish within a rigorous framework.

Step 1 – Determining and establishing a company culture: Good governance can’t be taken for granted. Deciding what your company represents, hopes to achieve and its aspirations will help establish both current and future culture and encourage professional behaviour. This should also be revisited as the company expands and priorities evolve.

Step 2 – Put clear policies and procedures in place: Strong governance policies and procedures can easily be overlooked during a start-up’s early days, but play a huge role in long-term good governance and corporate culture. Ensuring staff and management understand what behaviours are expected is at the heart of good governance.

Step 3 – Joined-up leadership and consistent communication: It is essential to create a balanced leadership team, comprising individuals with the appropriate industry expertise, strong ethics and integrity, supplemented with external advisers to complement their skills. A leadership team’s approach and decision-making transparency will set the ethos for the whole business and reassure internal and external stakeholders. 

Implementing good corporate governance is not a simple task – staying on top of Companies House requirements, industry regulations and compliance issues requires time and resources – but that does not make it less of a priority, quite the contrary.

This is where an expert adviser like Bridgehouse Company Secretaries can provide invaluable assistance to a start-up business. We offer a range of corporate governance services to suit businesses of all sizes and stages of evolution. Contact us on 0845 055 8260 or email info@bhcsecretaries.co.uk to see how we can help.

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