Thursday 27 October 2016

So why are billion-euro businesses in Ireland almost as rare as unicorns?

Published 23/04/2015 | 02:30

We don't do big business very well in Ireland. It isn't that we are bad at business, we are actually pretty good at it. We just don't develop many companies to real scale.

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This relative inexperience showed last week when some people speculated that a growing technology firm called Movidius could become our "first unicorn". This is a term used to describe a technology start-up company that reaches a $1bn valuation, sale or flotation.

We have had other unicorns in the past. Baltimore Technologies was valued at IR£7bn at the height of the dotcom bubble. Trintech's valuation hit IR£3.8bn.

It is only when you look at which Irish companies are valued at over $1bn that you can see the real value and achievement of having a technology company make it to billion-dollar status.

Chances are that if a tech company hits that valuation, it has invented a new product. The vast majority of billion-dollar Irish companies have been innovative but are not necessarily based on a new invention.

Elan might have been an exception to that but it is debatable how Irish it really was. We have Kerry Group (€12bn), Ryanair (€15bn) and Paddy Power (€4bn), for example. Kerry became an international template for turning a small co-operative into a major global business. Ryanair perfected the model of low cost airlines and became one of the most successful in the world.

But they are not built on a start-up invention. Neither are building materials group CRH (€20.9bn) or sandwich-maker Greencore (€1.3bn). There are several reasons for this apparent lack of invention turned into large scale business. Unfortunately, we can do very little about some factors, but thankfully others are perhaps moving in our favour.

The first one is our relatively small population/domestic market. Traditionally this has put huge pressure on companies to export from relatively early in their development. If we had 50 million people at home, we might have more domestic businesses worth a billion.

As it is we have Dunnes Stores and possibly Musgraves, both probably over €1bn but neither has gone on to become huge global or international concerns. There are few companies in Ireland that can achieve that. Larry Goodman's AFP business could be worth a billion having exported very early on. So too did Martin Naughton's Glen Dimplex.

The other reason we have so few Irish billion-dollar businesses is because so many entrepreneurs sell up when they reach a certain size. It is unfair to describe someone who builds up a €50m business and sells it, as "unambitious" because clearly they are. But there is something in the Irish business psyche that makes us sellers when a certain scale is reached and a big cheque is dangled. I think it is true to say that the typical Irish entrepreneurial dream is to start a business, grow it and sell it for millions - not billions.

Last week I interviewed John Boyle of betting chain Boylesports. During the boom he was offered €200m for his business. He didn't sell and plans to hand the business on to his children. The sell culture could be a lack of confidence rather than a lack of ambition. It may also have to do with succession planning. If you haven't floated and your children aren't interested, what are you supposed to do?

It might also have to do with the type of businesses successful Irish entrepreneurs build. They tend to be built on a clever idea - a new take on what is already done elsewhere. It tends to be delivered differently or in a smarter way rather than constitute a completely new invention that will beat anything else in the world.

Another pitfall has in the past been the tendency for Irish entrepreneurs to implode. Great businesses, from Larry Goodman's Goodman International to Tony Ryan's GPA, accelerated too quickly and took on too much risk.

More recent repeat performances of debt and risk followed by implosion, have included Waterford Wedgwood, Sean Quinn or any of the big property developers who went under. The late Ed Cahill, professor of business in UCC, wrote a book in the mid-1990s called 'Corporate Financial Crisis in Ireland' on how Irish entrepreneurs tend to implode.

Many factors he identified showed up again in the more recent economic crash, from weak management structures, corporate adolescent tendencies and poor corporate governance to dependency on a single personality or poor accounting control. Another factor that has gone against us, also applies to the Irish soccer team. We don't have a big enough talent pool. A small population obviously restricts the number of people who are going to come along with the requisite skills and talent to build a billion-dollar business.

There is no doubt that in business, sport, the arts, charity work and a range of other ways, Ireland punches well above its weight. But it is tough to play at the very top globally. We have people who do it, but perhaps not enough.

Some Irish entrepreneurs have built billion-dollar businesses abroad, like Denis O'Brien's Digicel or Pearse Lyons's Alltech.

But that is where there is good news ahead when it comes to building Irish multinationals or unicorns in the future.

Firstly, global businesses have to be built over decades, not years. Technology is an exception. Get the right product and the right team and you can build a unicorn in a few years. Ireland has a great reputation in the field of technology. With Movidius or whoever else, we have a chance to build unicorn businesses that will stay worth more than $1bn for longer than Baltimore or Trintech did.

Technology is truly global so Irish tech entrepreneurs who live abroad right now may end up building a global Irish business which has its origins somewhere else. It also means that many foreign-born technology experts who come here to find a job, could build such a business from here - but only if we make it easy for them.

Invention costs money. We are putting more money into R&D and we have a growing base of venture capital investors who will fund and stick with more start-ups.

Irish management capability has improved enormously which can ensure the business doesn't implode and goes the distance. However, real downsides remain. Many Irish entrepreneurs still want to sell when they see a big pay cheque coming. We are not the best country in which to start a business. If we don't have the entrepreneurial numbers at home, we should try to attract them to these shores.

Then we might see unicorns coming through a little more regularly than hen's teeth and flying pigs.

Indo Business

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