'We've set up a new office on Madeira': The big changes tech entrepreneurs are making ahead of Brexit

UK tech companies have told ZDNet about the big – and unexpected – changes they have made even before Brexit arrives.

UK firms aren’t ready for a no-deal Brexit Large numbers of small and medium-sized tech businesses haven't made any preparations for the UK leaving the EU - and many believe the government isn't listening to the concerns they have ahead of Brexit.

Over the three years since the UK voted narrowly to leave the European Union, tech companies across the country have been trying to figure out what Brexit means for them

Some have spent their time and effort rethinking supply chains and moving operations abroad; others have decided the level of uncertainty is too immense to manage and have opted largely to ignore the whole thing.

But as the Brexit process finally – perhaps – enters its endgame, it's clear that the past three years of the Brexit process has had a significant and lasting impact on the UK's tech scene, even before the country has even left the EU. 

SEE: IT jobs in 2020: A leader's guide (ZDNet special report) | Download the report as a PDF (TechRepublic)

How the tech industry responds to Brexit matters because these entrepreneurs are capable of generating the high-paying jobs that all economies are craving

Tech workers are also highly mobile. With in-demand talents, they can work from pretty much any location, so the impact of Brexit is likely to be visible first and most clearly on these individuals. And, as nearly half of exports from the UK's digital sector go to the EU, how the government finally resolves the Brexit challenge is vitally important to this group.

ZDNet spoke to tech companies of different sizes and at different stages of their development to see how the Brexit process has affected them so far.

'Jobs will now be created in Madeira, instead of here in the UK'

Open-source software company Payara has set up a new office and development team on the Portuguese island of Madeira. 

"It's absolutely to do with Brexit. The complexity of having two operating companies is not something we were looking to do," says Steve Millidge, the company's founder. Most of its customers are outside the UK, and many of its staff are European nationals.

HR and operations manager Julia Millidge says the company will be recruiting for new projects in Madeira, while the Millidges will also be living there for six months of the year.

julia-millidge.jpg

Julia Millidge, Payara: Creating jobs outside the UK.

Image: Payara

"The new projects that we're hoping to kick off, especially the tech, and the marketing and potentially sales, those jobs will now be created in Madeira, instead of here in the UK," says Julia Millidge.

What's not measurable is the jobs that would have been created but aren't, she says. 

"We would have probably created our development project in the UK. There's no reason not to. We would have just carried on. But because of Brexit that's an opportunity that a group of people in this country would have had but they're not going to have it."

'I see it as a Brexit tax'

Cybersecurity company SecureData has seen new business as a result of Brexit, helping finance companies with projects to separate their networks as they move their operation out of the UK and into Europe. But other companies are being more cautious about spending.

"There's been a lot more uncertainty. People are delaying tech decisions and rightly so. They want to know what the future is going to hold," says Etienne Greeff, CTO and founder of SecureData.

According to KPMG a no-deal Brexit would see the economy contract by 1.5% next year, while reaching a deal with Europe could see the economy grow by 1.5%. That gap makes a huge difference to investment decisions, says Greeff.

"There are also practical things that just cost us money, which I see almost as a Brexit tax," he says. The company's head office is in Kent, so in the event of a no-deal Brexit, disruption at Dover and other ports could cause big problems.

"Our motorway and main access route to our office will become a lorry park effectively, a massive parking lot," says Greeff. As a result, the company has spent money on making sure that staff can work remotely to avoid the traffic jams.

Like other companies, it has seen European employees leave over the ongoing uncertainty about their status in a post-Brexit UK. Greeff thinks the impact of a no-deal Brexit on the tech industry is not very well understood.

"The notion that it is a short sharp break, which I think is really disingenuous. It's not like that at all. Once people get out of denial and realise what the full impact  is, that's when the real work will start. A lot of people haven't started thinking about that because they're hoping it won't get to that," he says.

'One of the best things about London is that you have that diversity'

Swedish IoT start-up Minut made the decision to move its headquarters to London after the Brexit referendum result. The smart home alarm company decided to move because it needed access to workers with sales and marketing experience.

"It's only in the largest startup ecosystems that those kinds of people are available, and we just couldn't find the talent that we needed who had gone through one or two startups before," says Minut's co-founder and CEO Nils Mattisson.

Mattisson says the worry is that access to talent is going to get worse if it becomes harder to hire EU citizens post-Brexit. The company has moved it warehouse out of the UK and into an EU country.

"Our team now, maybe it might be based in London, but we have almost as many nationalities as we have people. And that's one of the best things about London, that you have that diversity," he says. 

"But that's contingent on people with the right experience, with the right background, being able to move here and to live here. My worry is that's going to change."

SEE: Brexit: UK tech firms aren't prepared for leaving the European Union with no-deal

Mattisson remains optimistic about the outlook for the UK. "We think that the culture and the language and the current state of London is going to be strong enough even after Brexit," he says. 

"When it comes to having this very international outlook, there aren't any other cities in Europe that have that same gravity and depth of talent pool – and I don't think that's something that will change overnight "

Mattisson also recognises that there are only so many things that he can control.

"When you run a startup, there's a thousand things that can happen that can really disrupt your business and you are much more fragile than a larger company. Of those thousand things, there might be 300 that you have some control over, and Brexit is firmly in the other arena where you can't really do anything about it," he says.

"Of course, we've risk-mitigated, but I don't spend many cycles trying to think about it."

'The continuing uncertainty is the worst thing'

Language learning company Lingvist said it has stopped hiring or expanding in the UK, and is now hiring staff at its Tallinn, Estonia office instead. At one point in the past it had considered moving most of its employees to the UK.

lingvist-co-founder-and-coo-ott-jalakas.jpg

Lingvist co-founder and COO Ott Jalakas says it has stopped hiring or expanding in the UK .

Image: Tonu Tunnel

"The people we have are still working there. We still have an office, and it's great. But we haven't expanded our operations and activities and the main reason is the uncertainty," says Ott Jalakas, COO and co-founder of Lingvist.

"From my point of view the continuing uncertainty is the worst thing, the worst scenario I was thinking of a year ago, and now it seems it actually has been realised," he says.

Jalakas says Brexit combines with a number of other factors, like the rise of remote working, the high cost of London, and the poor climate compared to other parts of Europe. Still, if Brexit can be concluded, the tech entrepreneurs that are leaving now could return.

"London is large enough and attractive enough not to ignore it, it will come back," he says. "If people are moving out right now they might be moving in again in two years' time once a reasonable solution has been reached."

'We stand by our decision, certainly'

In the summer, technology services company NTT Ltd announced it was locating its new headquarters in London. Its CEO Jason Goodall said the company had looked at a number of different options for its headquarters when it decided to create the new company. "We made a very deliberate decision to choose London," he says. Part of this was because the UK has a stable economy, plenty of talent, strong infrastructure and a diversity in population and thinking, he said.
 
"We stand by our decision, certainly. Brexit does not impact the operations of our business and our commitment to the UK remains extremely strong," he says, pointing to the further investment planned and an $86 million lab opened by sister company NTT Data which will be hiring hundreds of new workers in the UK.

"Our company is global, so we're used to operating in a number of different environments and under a range of different circumstances," he says. "We'll adapt to the deal, when we know what it is."

'Any action would be better than inaction at this point'

Simon Hill, CEO of idea-management software company Wazuko, is hoping for an end to uncertainty.

"We're an enterprise software company that's selling into a relatively new space, and people tend not to make big buying decisions when the world is unsure about where it is going next," he says. 

Hill's company opened a sales office in Scandinavia partly in response to Brexit and has put a second datacentre in Germany.

"It cost me more money and it's become a strength for us but it's something I probably wouldn't have done had I not been forced to by the broader political climate" he says.

simon-hill-wazoku.jpg

Simon Hill of Wazuko is hoping for an end to uncertainty.

Image: Wazuko

Hill is keen for an end to the Brexit process. "I just desperately hope that whatever happens that we get an end-of-October decision and can move beyond it, whatever it is. Any action would be better than inaction at this point."

He's also optimistic about the future for UK tech companies. "I think there will be big opportunities for UK business the other side of all of this. It will be a period of transition, which is why I'm kind of keen to get this thing started as well," he says.

'Nobody quite knows where this is going to land'

Russ Shaw, founder of Tech London Advocates, says the IT industry has been living with market uncertainty for over three years. 

"People are just finding it absolutely so incredibly difficult to plan for this because nobody quite knows where this is going to land," he says.

One of the biggest concerns for the tech industry is still the risk of a no-deal exit from Europe, says Shaw.

"If we have a softer Brexit, that gives people more options, more flexibility, but a no deal Brexit coming out on the 1 November I think would be immensely disruptive to some of the most disruptive businesses we've got." 

A no-deal Brexit would mean data flows from Europe into the UK would have no legal basis, plus making it much harder to do business and hire in Europe. 

Even Brexit with a deal could create big problems for tech companies as at the moment there is little detail on services, which make up most of UK tech companies' exports.

"It's hard to contingency plan when you have this huge variety of potential outcomes," says Shaw.

russshawheadshot.jpg

Russ Shaw: "It's hard to contingency plan."

Image: London Tech Advocates

Some have pointed to the continuing high levels of international investment as a sign that the UK tech industry hasn't been hurt by the Brexit turmoil. 

While those deals may reflect the quality of UK businesses, they also reflect the way that the pound has devalued against the dollar.

"Market valuations have looked attractive as sterling has declined. Market valuations are going to be even more attractive now, and if we have a no-deal Brexit and sterling continues to plunge, you're going to see much more significant M&A activity," Shaw says.

On the plus side: the caution and uncertainty and indecision and pent-up demand of the past three years could be replaced with a mini economic boom if a deal if reached, he says.

"Looking at this from a positive point of view, over the past three years, for our entrepreneurs in the UK we're creating an incredibly resilient bunch of people because they've been operating in this huge environment of uncertainty," says Shaw. 

"The downside is the stress and the mental health issues. If I don't know what's happening to my business in two months' time, that adds a huge degree of stress and pressure on top of the day-to-day issues."

Growing sense of independence?

The UK's tech industry never thought Brexit was a good idea. Before the referendum in June 2016, a poll of the UK's tech executives found that 70% wanted to stay in Europe. Top among their worries were the ability to recruit the staff they need from Europe, concerns over data flows, and fears about investment.

And last month seven out of 10 tech execs surveyed by industry group techUK said a no-deal exit would have a negative impact on their business in August 2019 compared with 69% in December 2018, suggesting that despite companies having another nine months to get prepared, they are no happier about the idea.

Brexit preparedness varies by company size. While nine out of 10 of the biggest businesses, with 250-plus staff, reported being fairly or very prepared for a no-deal exit, that number drops to 50% for medium-sized business, and to only 43% for small businesses with fewer than 50 staff.

Entrepreneurs like a bit of uncertainty. In times of rapid change they can find a market they can dominate before less nimble rivals can realise the opportunity is even there.

But dealing with the sort of constant uncertainty offered by the way in which the most-likely Brexit outcome has switched from soft Brexit to no Brexit to no-deal Brexit and back to the start again on an almost weekly basis has induced a level of Brexit fatigue that can challenge the most creative minds.

The UK and London, in particular, are still the leading tech hubs for Europe. London is still home to the largest number of billion-dollar tech companies in Europe.

SEE: Investments in UK tech startups hit record levels in 2019, despite looming Brexit

While cities like Paris, Berlin and Tallinn are keen to pick up companies unsettled by Brexit, it's hard to see any other location overtaking London any time soon. But it's also clear that the Brexit process has changed the calculation for some companies that would have automatically chosen to develop their operations in London.

When ZDNet spoke to tech execs in the UK about Brexit last summer, when the UK was originally due to leave the EU on 29 March, there was a sense of surprise, and disappointment about the route the UK had chosen. 

Most were hoping for a soft Brexit, some were hoping that the whole thing would somehow go away. Those that stockpiled or otherwise prepared for leaving the EU at the end of March then found out, when the deadline was extended, that they had spent time and money planning to no end. 

As a result, some companies, especially smaller ones, have given up on Brexit planning, and especially on no-deal Brexit planning, simply because it's impossible. 

Larger companies have made new plans, some of which move at least some of their operations out of the UK to protect them against the worst impact of a no-deal Brexit. And the mood has also changed. There is now more frustration that the uncertainty has gone on for so long, and less patience.

vinous-ali.jpg

Vinuous Ali, techUK, says businesses don't want rules that change and then change again.

Image: techUK

"From our perspective, we just want a deal," says Vinous Ali, associate director for policy at techUK. 

"A deal gives us that transition period and that's crucial for business. That transition period allows things to carry on pretty much as normal until there's a step change to something new and businesses are accepting of that.

"What they don't want is rules that change and then change again. For them the most important thing is certainty." 

For many tech companies so far the run-up to Brexit has meant European employees exiting, additional costs, confusion, and uncertainty. But in some ways, the Brexit process may have been positive for the UK tech industry. 

It has forced many companies into actions that they would not have otherwise considered, like moving operations elsewhere in Europe, even as politicians squabbled. Some have had to grow beyond their home market faster than they would have to have done otherwise.

That means, even before any Brexit decision is reached, many tech companies are also already in a post-Brexit mindset, one which involves them inevitably being less tied to the UK than they were before. Whether that new-found independence is good for the UK remains to be seen.