OK, so it's not exactly "grim" up North for tech — But there are some issues

This is the first post in a series of three about the tech start-up community in the North East of England. It is the result of interviews with start-ups, investors and advisors over the course of this week. The interviews were conducted under Chatham House rules. You can watch a selection of on-the-record responses below:

In June of this year, I wrote an article for the UK’s Daily Telegraph titled “It’s (still) grim up North”. It didn’t go down well. Herb Kim from Codeworks was appalled by it and Paul “Twitchhiker” Smith subjected it to a savage critique that made some valid points. It occurred to me that I might not have got it quite right. So, after speaking with several of the people who responded to my column, I decided to make the trip up to Newcastle to see things for myself.

Has my opinion changed? Yes… partly.

To begin with, I was astonished by the vibrancy and diversity of the scene in Newcastle, particularly given its size. The city is awash with smart, talented people brimming with ideas, and some of the technologies being developed are awesome.

Here are a couple of stats about the area that Herb collected for his blog post:

  • Only London has a higher rate of tech start-ups than the North East
  • Of those firms that have started life in the North East in the past three years, 20% are using or selling technology which was not available a year ago. In Britain as a whole, the figure is 11%
  • NorthStar alone has invested £33m in more than 200 North East tech companies in just the past few years
  • The North East is home to 550 digital companies, employing 42,739 people (as of 2005)

On Thursday, I met around 30 start-ups of various sizes. I asked each of them a set of questions designed to eke out their opinion of the scene. Some of the answers were predictable; some educational; others shocking. (You’re going to ask me what was shocking, aren’t you? Well, I’ll tell you – but not until the second post in this series, when I’ve had chance to get a few more people on the record about their experiences. Here’s a clue, though.)

As I wrote before, not only are the best companies in the North easily as good as those in London, but the North has everyone beaten on gaming. It’s also worth pointing out some of the other benefits of starting out up here: dramatically lower costs, for example. And sometimes the North East is a better choice for certain types of business: Paul Campbell told me that of the five businesses he’s started, one failed because it was in London and one succeeded because it wasn’t.

So what did I get right, and what did I get wrong?

In my Telegraph article, I said that Northern cities were not well networked internally. That was wrong, at least in the case of Newcastle: monthly get-togethers like ThursdayFizz (for creatives), organised by Quick.tv‘s Matt Moran and Orangepanda‘s Stuart Howard, and Ross Cooney‘s Super Monday (for the geeks and suits) are at least as well-organised as the OpenSoho or DrinkTank events in London. Codeworks, spoken about in almost Messianic terms by many entrepreneurs, does a great job too. Their summer party on Thursday night was brilliant and their events and services to companies are widely praised.

I said that Northern entrepreneurs really need someone to fight their corner in London. That’s true. The South-centric London media is failing to report adequately on what happens north of Watford. The various tech scenes around the North aren’t getting sufficient attention from the public (which means fewer potential customers) or the industry (which means fewer potential investors and advisors). We need to do a better job.

I also said that large amounts of public money were being administered badly, by people with little experience of the technology industry. It’s probably more accurate to say that money is often administered questionably, by people with insufficient experience in what makes a successful business. Five of the 30 entrepreneurs I met told me of frustrating experiences with public sector chequebook-holders who didn’t “get” what the business was, but gave them money anyway. That’s fortunate for them, but it’s certainly not the “sustainable economic development” that the regional development agencies are there to promote.

Finally, the subtitle of my piece said: “Companies in the North of England still suffer from a lack of expert advice and connections, despite some great ideas.” I stand by that. The problem is most acute with younger, less experienced entrepreneurs, who are being let down by an infrastructure that chucks cash at them without providing an adequate support network.

Even with a close-knit community and ready access to successful older business owners, many of the younger start-ups I’ve met this week aren’t getting the sort of hard-nosed, expert advice about business development or about the commercial viability of their products that’s available in London or the West Coast of the U.S. – the sort of tough love that’s dished out by private equity firms and hard-bitten serial entrepreneurs, to whom failure matters. As a result, there are some horribly flawed products and business plans flying around. Frankly, it’s alarming that some of these ideas are getting funding. (I’m not going to call anyone out at this stage, so don’t ask.)

Throwing cash at bad ideas is short-term thinking at best, epic wastefulness at worst

Here’s the thing about true entrepreneurs: they bounce back. Tear up their latest, greatest idea -demonstrate to them why it’s not viable – and they don’t throw themselves off the Millennium Bridge; they come back the following month with something better. You don’t need to fund businesses that you know won’t fly (and I’ve heard evidence of that going on), even – perhaps especially – in the name of regional development.

Funds in the North East (so far, I’ve only investigated Newcastle, so can’t speak for the other regions) aren’t doing anyone any favours by bankrolling – in some cases quite lavishly – bad ideas. The last thing the region needs for genuine, long-term economic health is a generation of think-they-can-dos whose estimation of their own success is based on whether they got that mythical £60k. Particularly because, from what I heard this week, it isn’t that difficult. In fact, getting cash seems to be the major indicator of success for many businesses in Newcastle. As Michael Birch pointed out earlier this week, that’s utterly wrongheaded.

I’m not saying that less money should be spent up here – maybe more should – but it needs to be spent more intelligently. Throwing cash around isn’t working: broadly speaking, the Angel networks aren’t growing and VCs from outside the region aren’t investing here. In other words, there’s no healthy entrepreneurial ecosystem springing up. 

To put it bluntly: what’s going to happen when the EU money dries up? Because it will. If what I heard this week is correct, that could happen in less than two years. Then there’s the probable incoming Conservative government to factor in. It’s horrible to think that such eye-watering expenditure will have been for nothing.

One NorthEast and the organisations it funds are trying something pretty audacious: they want to artificially manufacture an entire industry. But the problem is, too few people seem to have any idea how to measure their success. They simply don’t know if it’s working or not. From what I’ve seen so far, it isn’t.

So what do we do?

Here are a few ideas off the top of my head. I’ll be adding more to this list in Parts Two and Three of the series.

(1) Creating connections to the other regions in the North is laudable and necessary, but it’s not enough on its own. Those with experience in the North East need to forge connections with London, Silicon Valley and perhaps Berlin too. The scale of what’s being attempted here needs to matched by similarly bold thinking. There’s such little precedent for this kind of project that no amount of expert advice can be too much.

(2) I’m going to go out on a limb here and say that there’s a huge PR problem for tech communities throughout the North. Inaccurate misconceptions, based on little more than North-South prejudice, do persist in the South (prior to this trip, guilty as charged). Angels and venture capitalists aren’t immune to such prejudice. So why not invite more journalists up to see the best of what the North has to offer? More eyeballs on what’s happening in the regions can only be a good thing. I daresay this does happen. Let’s invest in more “missions” down South.

(3) Let’s get smarter about how we’re spending public money. Why not finance more trips to Silicon Valley? Hire some biz dev experts to coach young entrepreneurs? Run more conferences like the excellent Thinking Digital? What about a dedicated “London liaison officer”? Forgive the cliché, but the possibilities are endless.

(4) The scope and activities of organisations like The Entrepreneurs Forum need to be massively increased, and more talent and expertise from outside the region needs to be brought in to give support to start-ups as part of a systematic program of education.

To round up

It’s tough to get anyone to speak on the record about all of this, since almost everyone depends in some way on each other and on the public bodies that run the show, but I’ve been grateful for some raw honesty, particularly after the hostility generated by what I wrote in the Telegraph.

Some of the anger, I freely admit, was completely justified. I would say, though, that the further up the food chain in Newcastle I went, the more I found reactions like “I don’t disagree, but perhaps you could have been more diplomatic,” rather than “OMG! Outrageous! How dare you! What crappy journalism!”

On Wednesday night, thinking I was about to get lynched, I was thinking twice about the trip. That was dumb: in the event, even Paul Smith gave me a hug.

The enthusiasm and talent of the entrepreneurs I met this week took me by surprise. They really, really want to get it right (they just don’t know how yet). I had a great time learning about their experiences and trying to aggregate dozens of opinions into a coherent argument about the state of play in the North East.

Then again, it wasn’t all plain sailing: within five hours of arriving into Newcastle, I’d had my wallet stolen – cash, credit cards, train ticket, the lot. But since this was a trip about dispelling prejudices rather than reinforcing them, I kept relatively quiet about it and promised my host I wouldn’t mention it in my write-up. Whoops.

In Part Two, I’ll be investigating the quality of institutional support and resources available to start-ups in the North East, and whether some well-intentioned development programs are doing more harm than good to the local digital economy.