The Power of Data Podcast
Episode 49: What Gets Measured Gets Managed
Guest: Alice Hu Wagner, Managing Director of Strategy, Economics and Business Development for the British Business Bank
Interviewer: Louise Cavanagh, International Communications Director at Dun & Bradstreet
Welcome to the Power of data podcast. Today, I'm joined by Alice Hu Wagner, the managing director of strategy, economics and business development for the British Business Bank. Welcome, Alice.
Hi, nice to be here today. Thank you for having me.
I wanted to start with talking a bit about your personal history and your career journey. I know you spent some time at McKinsey and have held some positions across the banking industry as well. One way we often introduced our listeners to our guests is to ask you to talk about your career journey, your current role and how you got there. Would you mind giving us a little bit of a potted history?
Certainly. You can probably tell from my accent, I am American. I'm actually Chinese American, there, we've got the funny last name. And I wanted to go to Asia after college, but there was the Asian financial crisis and so I ended up joining a consultancy called McKinsey, and they sent me to Europe instead and I loved it, so I've pretty much stayed here ever since. I've been in Europe for 20 something years now. I went to business school in France at INSEAD, and ended up coming up to London because my other half was German and the UK is sort of a halfway spot between the US and Germany. I ended up going into financial services, because I was pregnant and I didn't want to travel anymore, because I remember being sort of five, six months pregnant and doing a three week around the world trip with stops in China, the US, Germany, and then the UK to do focus groups, because I was working in the marketing line at the time doing quite a bit with data, marrying up quantitative analysis with qualitative insights.
I've been in data for most of my career, but through lots of different angles. I did financial services for a while in London and then one day, through the power of LinkedIn, I got approached on LinkedIn, by a headhunter about this new entity called the British Business Bank. It was quite knew and no one knew about it. I was like, “oh, well, this sounds interesting. You know, why don't you send me a job spec”, because the person had literally just cold called the front desk of Barclays and sort of asked him and had got through to my PA. And I looked at it, and I thought, “hey, this is really interesting”. And so I went have conversations and bing-bang-boom, I ended up at the British Business Bank, which no one knew then and a few more people know today, but it's effectively the UK’s Domestic Development Bank. Basically, what that means is, it’s a bank, and all of this capital comes from the government, so UK taxpayers, and it looks after everything to do with access to finance for small and medium sized business owners. We do equity, we do debt, everything in between. What I look after is analyzing or my teams and I rather look after is whether or not our programs are effective, how to design better ones. And we do this all in a data informed way. That's sort of how I've gotten here. It's a bit of a round-about trip, but I am quite happy. And it's really a delight to be able to talk about how data can actually make a real difference, because that's something I'm very passionate about.
And it sounds like you've had a very round-about journey geographically but is definitely a strong background in the financial services sector, so great to hear your story. Thank you for sharing. I just wanted to dig in a little bit more if I can, about your role at the British Business Bank. Obviously, they're playing a huge role at the moment in terms of COVID and the loans schemes and things like that. You're responsible for strategy and the sort of forecasting and analysis. Could you talk about some of the things, I'm sure COVID is one of them, that have been your key focus areas in the recent months?
Absolutely. So we're recording this on the day that the Chancellor stood up in Parliament and announced his Winter Economic Forecast and plan and we've been sort of very involved with that. So COVID, absolutely, we've been doing a lot of work in terms of trying to figure out the best way how much demand there would be to help the economy just get through the immediate shock, sort of the emergency response, so the Bounce Back Loan Scheme, Future Funds, the Coronavirus Business Interruption Loan Schemes, and so on. And so we've been thinking very much about that.
But probably the more interesting thing is we've also been thinking about how you handle the recovery, right? Because we are in a recession at the moment, we think, and what's really important is that UK businesses are able to invest to adapt to the new normal, and to build better for the future. So that includes things like taking into account climate change, taking into account sort of the technologies of the future, taking into account inequalities, as well. So a lot of the analysis that my team and I have been doing, have been in that field in order to help us take a data driven evidence based approach know which policies would be most effective, but what kind of interventions would be most effective.
Thank you. You mentioned taking a more holistic view of things and looking at different policies like climate change. I know that diversity is a big topic in the financial services industry and something that you're quite passionate about, and obviously this year, as well as COVID we've had the Black Lives Matters, it's something that's come to the fore even more so than it was before. I know that the British Business Bank conducted a survey around the female founders, would you like to tell us a little bit more about that and sort of results that you found, I think it was back in 2017, and your vision for improving diversity around the industry?
Absolutely. So the British business bank is actually the largest domestic institutional investor in the UK venture capital. And as such, we have a fairly big ruled plan, we would take that role very seriously. So you're right, though the work was commissioned 2017 and actually got published in 2019. And it basically quantified things that we kind of already intuitively know. Because if you go into venture capital, you look to your left, you look to your right, you don't see very many women, you don't see very many people of colour, right. But what we found out was that, so for example, for every £1 of venture capital investment in the UK, all female founder teams receive less than 1p, less than a percent. And the all-male founder teams got by 89%. And the mixed gender teams got about 10%. And what's worse is that something like 83%, of the deals that venture capitalists invested in, had no women at all, on the founding teams, some of them just didn't even see any teams pitching to them with a woman. So if a woman shows up at Investment Committee, I mean, just off the bat, it's like, wow, this is different, and different, usually indicates risk. And risk indicates a higher level of scrutiny. And that's that is unfortunate. Because we found that although there is a pipeline problem, insofar as there are fewer founder teams that are sort of female or mixed gender, the rate at which they're getting money is even less than the representations in the pipeline. So you know, there's always been this question about, oh, you know, is it a pipeline problem? Or is there a bias? The answer is there's both right, there is a pipeline problem. But there's also still bias because you'd expect if there wasn't bias that at least people get funded at the low rate that they sort of come into the pipeline. But that's not what the number shows. And so you know, this is an area where the data helps, because we can spend and have spent so long debating about is a pipeline is a bias. It's like, “well, no, it is both”. And so we need to tackle both right to make this better.
Yeah. And it's, you know, those stats that you're quoting there, they are worrying, and things that you read, you just think, is it going in the right direction at all, and it'd be great to sort of explore a bit about what the British Business Bank is doing, but also across, you know, wider the industry. And I think, any ideas that you have, and what our listeners can do as business leaders, either in the financial services sector or elsewhere about the practical things that we can all do, and take joint responsibility to change those statistics and make it a more balanced environment.
Yeah, no, definitely. You're right. So the statistics that I cited are for venture capital and venture capital back companies to know general companies, small businesses are, as you know, F1 racers are to everyday drivers, like percentage wise. And so you do need to look at sort of the broader sort of set of small business owners, as well. On the principle that what gets measured gets managed, we are working with Treasury on what's known as the Investing in Women Code. And the investing of women code applies in terms of financial services sector to banks, you know, banks can sign up to this. But you can also be a venture capitalist and sign up to it, you can also be an institutional investor, and an angel investor as well. So there are different flavors, because financial services is hardly a monolith, right? Um, it's very different. And so for example, for bank lending, there's a commitment to sort of show, you know, what percentage of your lending is going to women and, and that's not just in terms of number of loans, but also the value of the loans because, for example, there is some research that suggests that, you know, if a man and a woman came in and asked for, let's say, you know, £100,000, the man would get £100,000, and the women would be given £75,000, right there, these subtle sort of things that just happen that, you know, if you measure it might, you know, sunlight is a great disinfectant and you might be able to address, but we are planning on doing the investing in women code sort of tracks. So for venture capital, it is a similar version to what we did in our initial research. We don't do it every year, because things move slowly. But we do it periodically. And we're hoping to be able to see quantitative progress over time. Would you like me to talk a bit more about sort of what are some of the things that people can do about this?
That'd be great. Yeah and so the joint responsibility that we all have, I think.
Yeah, I mean, the first thing would be, of course, given that this is a Power of Data Podcast, measure it. I mean, measuring things and collecting the data is not cost free. It really isn't. But if you don't measure it, then you're indicating that it's not that important to you. Because things that are important, do get measured. So in order to know where you are, and, you know, a lot of people don't do this because they go, “oh, well, I know the answer is going to be terrible”. I mean, for example, if you did number of female MD’s, and your average investment bank, “yeah, like you look to the left, you look to the right, you know, that number is going to be a bad number, or a very small number, I should say, not bad”. But that's not an excuse to not measure it at all. That's like giving in and saying, “well, I'm not going to do anything about it”. So you should still measure, it should make it transparent. You know what it is, you should actually commit yourself to saying, “hey, this matters, and that's not okay”. Right? Do it publicly do it privately, but, you know, hold people to account by saying, Yeah, you know, it's not where we want it to be. But it's important, and then back that up with action. So you know, collect the data, and be transparent about it, you know, analyze it, discuss it, you know, see what you can do to sort of affect it, right. But you know, if everyone hides things, then you can't make progress at all. And then the third thing I would say is, don't try to reinvent the wheel. So within the venture capital world, for example, there's diversity, VC, which is a charity, and they do a best practices book. Now, different best practices work for different people, you don't have to take all of them, but do your homework. So take a look at what other people have tried, and see if that might work for you. So for example, the concept of office hours, right, so one of the things that our research found was that and this is not a surprise to anyone who's ever tried to pitch for money, if you come in with a warm introduction, in other words, if somebody vouches for you, to the venture capitalist, you are many, many more times likely to actually get funding, then if you come in via the cold way where like you, basically you submit your pitch deck, you don't know anyone, you don't have an introduction. And what we find is, of course, people from minority communities, women, are less likely in their networks to come in with that warm introduction. So what you do is, you don't put the onus on the founders, you make yourself more available. So office hours, by saying, once a month, from this time to this time at this place, anybody can come in and have a meeting with me, which normally you can't get a meeting unless you've been introduced. You know, by doing that, what happens is that as a finance professional, you're opening yourself up to not the usual suspects, you're broadening, you're being more inclusive, and the most open and honest way of saying. And this costs, right, because it's costing your time. And it might make you slightly uncomfortable to talk to somebody that you've never met before someone who comes from a different background. But you know, progress doesn't get made without a bit of cost. And this sort of thing really, really works. We know that it works. And you can see if it works for yourself. And if it doesn't work, you can go well, why. And so by learning from other people's experiences, adapting, it may not be like as a listener, an Office Hour might not make sense for you particularly but is there a version of Office Hours, of opening up of what usually comes in via networks that might be equivalent, that would work? Does that make sense?
It does yeah. And I love your point around the power of networking is so key, and not just this industry, and the financial services industry, but across everything. And you also mentioned inclusivity and I think that's a really important point that we talked about, you know, women founders and the Women's Code, but we're talking about diversity here on a on a much wider level as well, in terms of ethnic minorities, and the backgrounds and disability and sexual orientation, there's lots of different things that come into play. And you know, especially as a as a parent, and it was both mothers, it's the world that I want my son to grow up in and not seeing differences and having that inclusive environment. I know, obviously, the British Business Bank is involved in the loan schemes around Coronavirus, there's been data published around the companies that are receiving those loan agreements and applying for the loans and being accepted and that the diversity there and that's been really interesting. I think it said 64% of the funding is to companies with black Asian and minority management teams, which is a really high percentage, I mean, that goes to show that they are more in need of them, of the funding than others. But it would be interesting to get your position on, you know, that sort of information that's coming through with those loan applications, which is an unprecedented situation, whether that sort of shining a light on the sort of differences across business ownership now, whether that's something that's changing or seen as a barrier.
I'll talk about a future fund first, and then I'll sort of broaden it out. Now, just as a start, because I know that we are aware and we are empathetic that not everyone in the community thinks that future fund works, right. There are definitely people who think that it doesn't actually reach founders from minority ethnic backgrounds, as well as it should, because the measure that you're referring to his management team and not founders, founders is a slightly different sort of matter. We just didn't collect the data in that way and we're going to try to but at the moment, we are where we are. But that being said, I think the fact that we have sort of at least mixed ethnicity, mixed genders management teams is encouraging. And the reason why that we know it's still not as good as it could be is because the program has a £250,000 minimum. And basically, we're backing the sector as it looks today, not the same sector that we would hope it to be. Right? And that's because it's an emergency measure, we needed it out fast, we needed it to be efficient and so there were limitations on what we could do. Long term, of course, you know, we hope to be able to, you know, be a catalyst for greater change. But we do know that founders from an ethnic minority background are not as well represented amongst founders and get money as they are in the general population. And we are actually the British Business Bank is currently working with the Number 10 Commission on race and ethnic disparities, to do some further research in this field, which will be coming out at the end of October. And definitely by the end of the year in terms of recommendations. So for listeners, I would say watch this space, because we should be able to say a lot more about this topic later this year, and also talk about active actions, that, not just us, though, I mean, the bridges bank is one player, but we're hardly the only one we are going to be calling on the financial services sector, on local and central government to take action to ensure access to finances more equally available to founders of whatever background. It's difficult, right and it's going to take some serious effort from across the communities to be able to make this happen, I think.
I totally agree. It's not a one organization solve situation, everybody has to play a role.
The other thing I would say is that intersectionality is a thing I know that's a little, it shouldn't be controversial, but it is. So for example, I think the data would show, you know, if you're a woman, you're disadvantaged relative to a man, that's just fact. And if you are from an ethnic minority background, you're disadvantaged compared to someone who's white in the society. But if you're both, if you're a woman of colour, the outcomes are a lot worse. And if you're a mother, on top of being a woman of colour, it gets worse yet, that's not fair. Ultimately, and we're running through econometric modeling to try and disaggregate sort of various factors. And what we find is that there's a lot of collinearity, right. So you know, for example, having to work part time having caring responsibilities, you know, those are correlated, right. And then those two things are correlated with less good outcomes. I mean, duh, for those of us who are working moms. But the data shows it is the interesting thing, you know, being from an ethnic minority background is cross correlated with having lower income levels, and more likely to live in a deprived area. And then those things are correlated with sort of, you know, poor backgrounds, because of the networking effect. Things basically compound on each other. And it's not destiny, right? correlation is not causation. And, you know, these factors are not destiny, but they just mean that people don't start in the same place. And that's what I think I would like listeners to remember that in the race of life, different people start in different places and it's really easy not to realize that for someone to get as far as they can get really depends on a bit a lot actually on where they start. I'll give you an example. Okay, so you know, the amount of money that you spend to start a new business, we know, let's say you have just put £2,000 or £10,000, exploring whether or not a business idea makes sense? Well, you know, £2,000 to £10,000 might not mean a lot to you if your household income is over £70,000 a year, right and you're part of a dual income household. But putting in £2,000 to £10,000 if your household income is £30,000 or less, which by the way, £30,000 is sort of a median, slightly above median. That's a lot of money, that's like whether or not Christmas happens or not money, right? And so the amount of risk that you're taking, you know it, if you're from a wealthy background, you try a startup and it doesn't work. And you've spent sort of £5,000, yeah, you can try another one. Right. And it's no biggie, you can keep trying and trying and trying until you get to success. But if you're less privileged, you might have only one shot at it. And so that's the thing is like, we go, “oh, and people need to have grit, they need to keep going”, it's like, well, no, it's a lot easier to keep going if you had a lot to start with.
The access to finance pieces is just so key, isn't it? It's really.
It is, because you know, if you are less likely to have friends and family money, you're more likely to need external finance, right? And yet, you're less likely to get it. That's just how it goes and if you have one of these things, and it goes onto your credit file, then you're less likely to be able to do it again. But that means you're going to take less risks. And conversely, in the startup land, if you take less risk, you might actually have a greater chance of failure, because that's kind of the way the cookie crumbles. It's a complicated thing and it's fascinating to see how the data cast light on these kind of intuitive things that we know about.
Yeah, you made a great point earlier on in our conversation about how what gets measured gets managed. And I love that, you know, obviously coming from a data company, then I would say that but it's just so key that you know those metrics of who's getting the funding and the information lies behind it. That's the only way that we're going to have the evidence and the drive to make a transformational change that's needed is using that effort. To make more informed and more transparent decisions, and I think the piece around access to finance is really interesting. It's something that we've delved into with, we've surveyed small businesses in the past and the percentage of people who would go to friends and family first, especially in a smaller business end in micro business end for funding and for support, rather than go to the lenders, and they just have this perception that they either don't want to have the debt, or they think they'll get rejected, it's just a huge education piece. And I know that there's been so much done by the government and the British Business Bank have been really involved through the Small Business Act of trying to encourage more people at different alternative lenders into the market and just get that transparency about what's available to people. And the work you do around that, do you seeing a shift, this is probably pre-Coronavirus, but a shift in where people are going to for access to finance and sort of a more choice available in the market, which has always been, you know, the government's ambition.
Yeah, definitely. I mean, I do think that before COVID, we were seeing that trend happen, where people were going to more alternative finance providers. I worry post COVID, whether or not that's still happening, because not least of government choices around the delivery partners for the emergency schemes, which you know, do include some alternative finance providers, but have leaned heavily on the existing finance providers. We are hoping that choice is not a luxury and it will still persist and we know that a lot of that choice is really valued by people because they feel like they are more likely to be approved, they prefer the experience that alternative finance providers give.
Thank you. I know we don't have all afternoon to talk about this and we could talk about for ages, it's fantastic both on the access finance piece. But also, you know, the diversity topic, you're obviously extremely passionate about that. And the British Business Bank is sort of leading the way by doing this research and shining a light on the issues that needs to be addressed. Before we close, we often ask our guests about a different related question, something to leave our listeners with in terms of inspiration, it could be something that you've read, or you’ve listened to that's made an impact on you, or someone that you've recently or in the past dealt with who's given you a piece of advice that has resonated with you. Is there anything that as a leader in the financial services space, and as a woman as well, in this space that you've got advice for, for listeners that we can perhaps end the podcast with?
I mean, being a data kind of gal, I'll leave you with a formula, which is happiness equals expectations minus reality. And what that teaches you is that there are two factors to try and achieve sort of happiness. One is to manage your expectations. But the other is to get your reality aligned to where you want to go. And if you shoot high for the stars, you won't get stuck in the mud, you might not achieve the stars, but you will achieve something. And that's something that I find really important. I mean, it's funny that we're having this conversation about data because as a Asian female, I was given advice a long time ago, that I should go into data, this is before big data was a thing because I was quote, good with numbers. You know, because in the US at least, there's a stereotype that Asians are, you know, very good with numbers, but not so much with people. And I took that under advisement, and I also went, you know what, I think I might actually be okay with people too. I mean, you know, it's allowed to be a girl, and to be good at both numbers and people. Actually, truth be told maths wasn't even my best subject in school, I mean, like, by far. And so that's one of the things that I would say is that, you know, be careful about the expectations that people put onto you. I love me my data, as you guys can tell, but I don't allow myself to be limited by that, you know, data is only interesting if it results in insight and the insight results and action. And to have action take place you have to be a leader and you have to put yourself out there. And so you can be a data geek, definitely a data geek. But you can also still be interesting and dynamic and a leader as well. I mean, I figured somebody who's listening to the power of data podcast, that might be something that might resonate, I'd hope.
I'm sure there's a lot of data geeks out there, but who've got very different sides, their personalities as well so that's, that's fantastic piece of advice leave us with. It's been brilliant talking to you Alice, I really enjoyed our conversation and thank you so much for taking the time to join us today.
Absolute pleasure. Thank you.