Startup Musings on Brexit

Working on a startup means a single-minded focus - weekends, late at night, at the gym, first thing in the morning - you are always thinking about your idea and how to make it better.  It is very hard to be distracted.

But in the early hours of 23rd June I was distracted.  Britain's referendum meant the UK would leave the EU.  This was a seismic decision that has already changed the landscape of our economy.

On a personal note I'm not shy about sharing my own political beliefs on this...  Anyone who follows me on Twitter (@dariuskumana) will know that I believe that this country is far stronger WITHIN the EU.  But this post is not about that… it's about how startups can respond.

In the run up to the referendum, many companies across the UK will have made some kind of Brexit contingency plans.  Workshops or chats over lunch on how to best respond in the unlikely event of a Leave vote...  At Wrisk, we had a few conversations like this, but the hard reality of the actual decision and the resulting fallout has a way of focusing the mind!

The Challenges

People have mentioned lots of ways the tech scene and London's position as the startup capital of Europe would come under threat from Brexit:

Smaller SAM

You naturally want to setup your business in a market that gives you access to the most customers and where the legislation encourages trade between different nations. The single-market gives us easy access to European customers - Brexit means some startups will see their Serviceable Available Market (SAM) shrink considerably.

People build software - it’s about people.

Good tech talent is incredibly rare.  Reducing the available talent-pool from which you can easily hire makes finding the right people much harder.  Beyond acquiring new talent, the Brexit decision takes an emotional toll on established teams.  I don’t know a single London startup team comprised solely of British nationals.  If folks are thinking about their employment status or the impact on their (or their partner's) right to citizenship - they are less likely to be focused on the task at hand.

Berlin Calling

For many years London has been heralded as the startup capital of Europe.  Brexit and the turmoil that comes with it means places like Berlin suddenly becomes a much more attractive option for headquartering startup businesses with global ambitions.  If there is an exodus of startups towards other EU tech centres, investors will likely follow.

Investment Challenges

There is no doubt that uncertainty will create a short-term “challenge to find investors” for some U.K. startups.  Some investors and VCs may be more reticent in deploying capital until they have a clearer view of how the situation is unfolding.  For early stage startups where runway is short this kind of delay can be fatal.

Lack of Airtime

Brexit is proving a massive distraction investors, advisors and partners alike.  In the coming weeks/months it will likely prove more difficult for startups to access them.  

Unpicking the Details

Dealing with changes to hosting arrangements, data laws and the impact of changes to EU legislation around employment and trade must all be factored into team backlogs.  Even if no immediate change is required, teams must capacity plan for this work once the big-red-Article50-button is pushed and clock starts ticking.

The Opportunity

The list above makes for some pretty sombre reading but there is also the opportunity for startups to turn weakness into strengths.  During this time of uncertainty there is great opportunity for startups who capitalise on the one trait that so often differentiates them – responsiveness.

Responding to Change

One of the biggest advantages of startup culture is agility.  Small, high-performing teams able to rapidly respond to change without the constraints of heavyweight bureaucracy.  The impact of Brexit on startups is severe - but the impact to incumbent industries which startups are looking to disrupt is potentially devastating.  Be it a pivot of the model, relocating your headquarters or targeting a different market geography - a small startup is far better placed to execute rapid change than large incumbents.  Furthermore, incumbents looking to disrupt themselves from within are also far more likely to lose focus (and internal funding) for these initiatives whilst trying to put out the fires ignited by Brexit.

Recognising new Opportunity

With any kind of change comes opportunity.  With Wrisk, for example, we have been looking for ways to challenge legislation that prevents us offering differently priced quotes to male and female young drivers.  The data supporting this different pricing is not in question. And this kind of challenge should become easier in a post-brexit environment.   Many other such opportunities will emerge and startups need to stay focused in order to spot and capitalise on them.

The Way Forward

At their core, entrepreneurs tend to swim against the current and thrive in situations where many others fail.   In my view, London is still a great city in which to be an entrepreneur.  It is home to some of the best tech talent on the planet.  The UK remains a centre for academic excellence with some of the best universities in the world being located here.  The English language remains unmoved as the widely accepted global standard for business and trade.

Britain, Brussels and the EU might be suffering turbulence - but politics is not everything.  After all most entrepreneurs are looking to change the world - an audacious goal that makes politics look provincial...