The Leap 100 November Poll – Climate: Legacy
The legacies that matter to founders
When does an entrepreneur leave their company? Do they give it a few years, let a fantastic management team settle in and move on? Do they wait for an exit and then leave? And how much do they plan these things? Out of the fast-growth businesses in The Leap 100, 38 per cent of founders and/or chief executives said they plan to leave their company within one to five years. A third said they expect to stay for five to 10 years, and 27 per cent said they’d be there “indefinitely”. Three-quarters of respondents intend to sell their stakes at some point, with 22 per cent planning to retain their stake but pass control to someone else. Three per cent want to pass it on to their family.
This month’s survey focused on legacy. “We hope that our legacy will be to scale the positive impact our business has, and to inspire other businesses to behave the same way. If business isn’t a tool for good, then it is a waste of talent and resources,” says Kresse Wesling, co-founder of ethical upcycling firm Elvis and Kresse. Nearly 40 per cent of The Leap 100 said that their legacy rests on improving the lives of their customers. Many included their employees and shareholders in this too. Ruzbeh Bacha of City Falcon, which provides real-time financial news, echoed others in saying he hopes his legacy will be to “change the lives of average people (customers and employees) by helping them to generate higher than inflation returns and manage their finances better.” Another founder added that he hopes to inspire the people working for him to start their own companies in time. He was among the 19 per cent of respondents who aim to transform the sector in which they’re operating. And with many respondents employing well over 100 people, others comment that they think about the difference their company makes to the UK economy.
Perhaps surprisingly, over 85 per cent of The Leap 100 business heads plan to found another company at some stage. And for some, selling and moving on don’t necessarily go hand in hand. Tamara Littleton, chief executive of agency Emoderation, plans to stay at the helm indefinitely, but is working hard to build a strong business as if she is getting ready for sale, even if that’s not the end goal. She points out that doing so “ensures that we run the best business we possibly can.”
But how helpful is the current tax regime to business owners? Fraser Smeaton, co-founder of Morphsuits, believes that Entrepreneurs’ Relief “incentivises you to found and grow a business over a certain number of years, but it also incentivises you to exit before you truly scale it to its potential.” This is because a founder may only pay 10 per cent capital gains tax at the point of sale, but they’ll pay 40 per cent tax plus on their salary or dividend income. “Therefore, after a few years, you are going to be tempted to enjoy some of your hard work, and sale becomes the best option.” He suggests that a set of criteria should be created which, when applied, allows the founder of an owner-operated fast-growth firm to take dividends at the Entrepreneurs’ Relief level, with it coming out of the same lifetime allowance. “With this policy in place, we might see more founders go on to try and create a British Facebook or Google rather than cash out early and see the company potentially sold abroad.”
This article first appeared in City A.M. on Friday 26 November 2015. You can view the full City AM article here.