Picking up on a recent post by Future Options, the rapid adoption of so called alternative finance to the point where it now represents nearly 50% of funding to SMEs is typical of the disruptive nature of these parallel businesses. It is tempting to see the democratisation of finance as simply a beneficiary of technology enabled start ups in crowd funding and the like but in reality the situation is much more complex.
The shift, particularly for SME funding, has much to do with the aftermath of the financial crisis and the regulatory response to that as well as new opportunities and is itself illustrative of the dilemma faced by traditional businesses, not just in financing. Significant funds are needed to maintain legacy businesses (especially as this post suggests, those built through M&A) and the entire structures, processes and culture of conventional business has been built with scale rather than agility in mind. And, with known business models, regulators are in a position to respond with policy and rules which reflect and build on what’s gone before rather than the new.
So is this really a question of old vs new? Simply a cyclical change which sees the replacement of the old guard? In practice it seems unlikely when the wider picture is considered. When I was doing a post graduate diploma in printing studies in 1980 electronic typesetting was coming in and the death of the newspaper was predicted within 5 years. Publishing has indeed changed significantly – but not within 5 years and not with the complete death of newspapers. Any more than radio or TV has died completely. Instead niches develop – mainstream moves on, but there are environments, activities and tribes for whom conventional models make sense. None of the traditional media is unscathed, or in the identical format, but they still exist and indeed in some cases are thriving.
There is also the case, going back to financing, as to what it is that is being financed. Many new businesses require significantly lower levels of capital than in previous start ups (limited hardware for example). M&A has not returned to being the mainstay of growth in the way of the 90s and hence the type of financing appropriate for that is unlikely to be as predominant. And the big acquisitions in the tech space at least are frequently made by corporates with cash filled balance sheets.
Alternative may indeed be the wrong name, but the broadening of funding opportunities to support SMEs in particular is a welcome one and has its parallels in many other sectors where new approaches are growing alongside old models. I have classified this trend under agile responses – as the increase in options can only benefit more companies.