Disruptive business models challenge the current ways of working, and threaten significant change.
When you develop disruptive business models, the “disruption” typically happens in two places. Firstly, the target beneficiaries need to change their working ways in order to achieve the benefits.
However the major disruption comes to the traditional practitioners in the associated arena. These businesses tend to meet the change with negativity. This is through their fear that if the “disruptive changes” become widely accepted, their current comfortable ways of working will become obsolete.
True disruption is rare, and usually driven by a significant new technical finding or invention. Over the last 20 years or so, I’ve visited hundreds of businesses as an Innovation specialist, ranging in size and sector. I’d guess that around 5% have an idea that they think is truly disruptive. Of these, less than 0.5% have an idea which actually IS disruptive AND achievable. Finally, around 0.1% have a disruptive idea which reaches it’s potential. So what I’m trying to say, is that they don’t come around every day.
Why am I writing this? We’re currently implementing disruptive business models which are already causing waves, bringing significant benefits and upsetting the “old school”. I’d like to share with you the journey we’re going through.
So what are disruptive business models?
To understand and appreciate our journey, it helps to know what we do, and how we’re causing disruption.
We help companies recover costs towards technical development through the government’s R&D Tax Credit Scheme. It’s quite simple – if you’ve addressed technically challenging problems, you can potentially claim up to 33% of eligible costs back. This includes salaries and other elements of expenditure. It’s actually a little more complicated than that, but we don’t need to go into detail for the purpose of this blog. If you want to know more, I’ve added some links at the bottom of the page.
Compiling a “return” involves a few steps. You need to identify the eligible activities, clarify what you’ve spent, work out your eligible figures, and write a report for HMRC. Your accountant then fills in a few figures on your annual return and HMRC do the rest. However, there are a few snags in the process.
While a few companies manage their own claims, most put them in the “capable” hands of accountants or external consultants. These people investigate the finances and compile the claim for their client. The typical cost model for third party claim companies is to charge up to 33% (20% is the norm) for completing a claim.
Whoever completes the claim, the challenges we’ve encountered are numerous, and include:
1. Claim Consistency
There are no hard and fast rules for claiming R&D Credits, more a case of “guidelines”. As such, many companies and accountants have a “wet finger in the air” approach. Scarily, this lacks the evidence required to substantiate a claim in the event of a visit from HMRC.
Consider the question “how long is a piece of string”. In these cases, claimants are either suggesting “lets say 6cm, it feels about right and no one will ever ask or question our reply”, or alternatively “lets say 3m, as that figure serves us benefit, even though we can’t prove it”.
2. “Gilding the Lily”
I‘m not suggesting that many companies and consultants do this, but we have seen it. Companies submit claims which include activities and projects which are clearly ineligible. This means that a visit from HMRC could result in money being clawed back and fines being issued. There are two possible reasons for this: (a) greed (maximising the company’s claim and the consultants percentage based commission) or (b) simple incompetence (not sufficiently understanding the scheme rules, which questions whether these people should be operating in this field).
In this case, we think that the preverbal piece of string is about 50cm long, but we’re going to tell everyone it’s 75cm, because again, it serves us financial benefit to do so.
3. Time Commitment
The “wet finger in the air” approach only takes seconds, but holds no substance and comes with severe consequences. The other end of the scale – the typical consultants approach – can take days of your time. They visit your business to talk to your technical staff, quizzing about a range of activities. They then take a few more days to compile the report which contains a considerable amount more than HMRC require. That said, it’s is good to justify the high fee.
Here, we’re making a good guess at how long the piece of string actually is, but answering a simple question with an unnecessary thesis on the history of string and measurement systems.
The 20% fee can often be justified on smaller claims. That said, many businesses won’t speak to companies with eligible spend less than £30k (in many cases it’s £50-60k) as they want to maximise their commission. This leaves a high number of companies with potentially smaller claims unable to proceed with a claim. Costs for those who are able, soon spiral past the £5k mark for a task which should be relatively simple and quick.
Essentially, we’ll tell you how long your piece of string but it’ll cost you in excess of £5k. You will, however, receive a lovely report with this (which you’ll probably never open).
How are we revolutionising the system with disruptive business models?
A while ago I was introduced to someone who had left a major R&D Claim company to develop their own software. This software helped compile a claim in an hour. Its then automatically generated the PDF report containing the precise information required by the accountant and HMRC. No bullshit, no unnecessary wording, no time wasting or lily-gilding. Simple, straightforward, and fit for purpose. And bloody brilliant.
I immediately knew that this could revolutionise the industry. However, I also knew that some people would use it without changing their operational model. It required a slick business model to really disrupt things, which is where we started to scratch our heads.
We knew that in the worst case (for us) there would be a “race to the bottom”. This is where consultants who use the software started reducing their percentages until they were down in the 5-10% region. So we did something different – we introduced a simple engagement model with a flat fee.
We agreed to work with ANY client on a totally free basis to help them eatables the value of their claim. We would then offer them a report which they submit to HMRC and their accountant. All of this could be achieved in a much quicker timeframe (average 90 minutes) and at a significantly lower cost (average £4,750 cheaper) than our typical competitors. We were also able to support companies with lower claims due to our cost model.
When the early adopters give good signals…
We launched the pilot programme in November last year. In a few months we had a raft of clients from a single-person company developing a new product through to a £50M business who moved to us from one of the “big 4” auditors.
Our challenge moving forward is to ensure that any business interesting in claiming R&D credits can access our service. To do this, we need national expansion in a short timeframe. The other advantage that we have, is that we don’t really need to meet the client. Sure, it’s nice to sit face to face and build a trusting relationship, but where it’s a smaller claim or geography is a challenge, we have completed claims over the phone and email. Skype / FaceTime is also a great option.
We’re currently piloting a regional programme, training and supporting a team of R&D advisors across the North West of England. Our vision is to expand nationally in summer.
So the ball is already rolling – and with it comes the challenges. This is where we ask the key question “who really becomes disrupted”?
So who does become “disrupted”?
The obvious answer is the client. We’re introducing a new system which introduces a different way of working. However, it’s simpler for them, saving a lot of time and money. If they’ve lodged a claim before it’s even easier, as they already know what type of activities in their business are eligible.
From these people, the questions and barriers are typically based on scepticism and disbelief. “How come it’s that much cheaper?”, “How come it’s that much faster?”, “Surely you’re not as thorough?” come the questions, thick and fast.
The answer to all of these questions are simple. It’s quicker because we use a different approach. This doesn’t require a consultant spending many days in your business and writing an excessive report.
This time saving allows us to present considerable financial savings to you. With regard to content, it’s as thorough as you want it to be, as it’s based on information you provide in answer to focused questions.
How competitors complicate disruptive business models
The sticking point is the disruption caused to providers of the current system – i.e. accountants and consultants. They try to cause “disruption” of their own in a negative manner, by questioning it’s validity. This is usually as a result of disbelief, denial and fear that it will overtake their more “comfortable” methods and make their offering obsolete . Think about it. If you were told that someone was offering clients the service you provide with equal impact but for a third of the cost, how would you feel and react?
All of the questions are so predictable:
- The software is questioned, even through it’s been written by leading experts and practitioners in the field of R&D Credits.
- The quality of the report is questioned, even though it’s been specifically designed to include the precise information required by the clients’ accountants and HMRC.
- Our experience is questioned, even though we’ve each been operational in these (and related) fields for over 25 years.
- The accuracy of the method is questioned – even though our claims are proven to be equivalent to those developed by consultants using the traditional methods (and we save more money by charging less)
Most of the murmurings happen behind our backs as it’s feared that what we’re doing IS real, It genuinely threatens the existence of those who want to carry on over-charging clients for old methods.
People shouldn’t forget that history is forever, and dinosaurs die. Evolution always wins.
What’s next for our disruptive business models?
We’re often questioned as to why our cost is SO low, and why we pay our associates so much. The answer, is that our model is based on one simple philosophy – DBG. Don’t Be Greedy. I’d have put an “F” in there too, but apparently not everyone appreciates that.
Our disruptive business models are about helping companies who perform the R&D keep a higher percentage of their rebates. The model isn’t greedy. Our costs aren’t greedy. When our associates help these companies, they’re appropriately rewarded. After all, they’re personally selected based on experience they’ve amassed throughout their careers.
So we move forward, addressing each barrier one at a time. We’ve piloted the new model and system with great success. We’re training our first associate advisors now, who will be delivering support to clients from late February with our pilot complete towards the end of August. Assuming that’s successful, we’ll roll out nationally over the following months. I would love more to see than 100 advisors fully trained and delivering our support across the UK by the end of 2019.
We’re coming, soon, to a town near you – if you want to know more, please drop me a note and I look forward to talking to you!
To find out more about our R&D Tax Credit model, click here: RandD Tax Claims – About R&D Tax Credits
To find out more about the other services provided by Geminus, click here: http://geminustraining.com
For further information on the R&D Tax Credit Service offered by Geminüs please contact Richard through linkedin, or by emailing firstname.lastname@example.org. We’re always interested in talking to companies interested in making their first claim, a repeat claim (saving you money and time). We also want to talk to consultants interested in boosting their income substantially by becoming trained R&D advisors. We also pay a 10% referral to you or a charity of your choice for referrals which result in the purchase of a claim report.