The UK government is still struggling to come to an agreement about what the Brexit deal should look like. The recent no-deal Brexit attempt was unsuccessful and failed to resolve any of the outstanding issues. The referendum has already had an impact upon businesses across the country, and the effects will increase once Britain actually leaves the EU.
Start-ups are one type of business affected the most by the decision to leave the EU. They are already suffering from a number of negative impacts and changes caused by Brexit, and the unpredictable nature of the Brexit negotiations have created a very uncertain atmosphere.
So, how could Brexit affect UK start-ups? What will those effects look like going forward?
More Costs for UK-Based Businesses
One of the immediate effects of Brexit is the looming set of fees and additional costs that will soon hit UK businesses, once the UK joins the open market without the usual protection under EU rules. Start-ups, with their lean approach to business operations, will find these new fees and higher overhead costs incredibly challenging.
Experts believe an average brokerage fee of £12+ for both sides of the border and VAT will be billable for all deliveries from / into the EU. FedEx and other courier services already have mechanisms in place to charge for the processing of paperwork when shipping leaves the UK, and again when the same shipping enters France or other European countries. The small fee may not look significant at first, but it is an added cost that makes shipping to Europe more expensive. This will lead to UK businesses being less competitive.
Dr Stewart Newlove, CEO at Antibodies.com, reaffirms the theory. As a start-up they ship research products to customers across and Europe and are among the companies that will be affected by the change.
“Shipping our products to customers across Europe will be more significantly more expensive than before, and that lowers our ability to be competitive in the European market, even when it is only by a small margin,” says Dr Newlove.
A Slowing Down Economy
When the idea of a referendum was presented, one of the arguments from the Leave campaign was that the UK economy would grow exponentially as a result of Brexit. Today, however, the reality is that the economy is showing clear signs of slowing down. The Pound has been moving in an erratic way, and the economy as a whole is suffering from setbacks.
The most recent report showed that the Pound is tumbling again due to the issue of a no-deal Brexit. Despite a recent bounce, the Pound is still 18% below its level before Brexit, which is a substantial margin, and a margin that we cannot afford to cover in today’s slowing economy.
The global economy isn’t helping either. The US-China trade war is putting more pressure on the UK’s economy. There is a possibility of a 3% reduction to UK economic growth if the market continues as it is. An slight turn for the worse will further increase the prediction to a whopping 5%, which means the economy will not show any sign of growth in 2020.
For start-ups, a robust economy with plenty of opportunities to seize is crucial. The current rate of growth – and the potential decline of the economy as a whole – is a serious risk to start-up growth. Companies who are at their initial stages will have to be leaner and far more efficient to survive market challenges, let alone remain competitive in the EU.
A Shrinking Talent Pool
There is also the fact that Brexit has caused a substantial reduction in our talent pool. Talented individuals from European countries now face uncertainties regarding their position in relation to the UK. Furthermore, they now face a degree of hostility from some Britons, since the EU referendum, mainly because of the negative sentiments that were used by the Leave campaign to further their agenda.
Once again, this is a threat that affects start-ups the most, particularly those who are in their Growth stage. Start-ups need to recruit capable talent quickly, and that is a tall order when the talent pool is limited.
Choosing to hire from EU countries is not a viable option either, especially with market uncertainties affecting talents’ willingness to work in the UK. More established companies have now set up operations in European countries to get around this challenge, but that is not often an option for lean start-ups.
The result is an observable slow-down in recruitment, which further leads to a slow-down in start-up growth. It is difficult to ignore the fact that European cities are growing as start-up hubs faster than UK cities. London, Cambridge, and Manchester are attractive for UK-based start-ups, but Berlin and Warsaw are catching up quickly.
“The UK is very near and dear to my heart. But … we feel that the opportunity to recruit people in the European Union, particularly on the technical side, is much easier than it is in the UK,” said Brynne Kennedy, CEO of Topia. As the leader of a company that specializes in moving start-ups and companies to Europe, she knows how important it is to have access to a growing talent pool.
In a statement to the media, Alastair Mitchell of EQT Ventures pointed out the importance of agility as a competitive advantage. His view may be the solution to the challenges that come from Brexit.
“In an age where innovation is borderless and technology is transforming countless industries, the best-emerging companies will be those that are global by default.”
Since start-ups are agile enough to react quickly to market changes, those who are willing to take the necessary steps to react will be able to overcome these challenges swiftly. Going global may be the best way to go and becoming a global company by default is the way forward.
Despite potential benefits, start-ups will be presented with many challenges as a result of Brexit. For UK-based start-ups to remain competitive, a flexible approach will be required.