It’s not the amount of support for SMEs that’s the problem. It’s encouraging them to make use of it.
In his speech to the conservative party conference last year, David Cameron asserted that we need to do more as a country to get behind the “doers” and the “risk-takers”. In his mind – and indeed in the minds of most people – the entrepreneurial class are like energetic Jack in the Boxes. They crave to be unleashed; to act on every opportunity, to start a business and grow it as fast and as big as possible. Ergo, all we need to do is to get out of their way and give them the occasional leg up.
This has been the narrative underpinning the many pro-entrepreneurial initiatives launched by the government over the past few years. Take, for example, the StartUp Loans scheme. Originally available only to the under 25s, the offer of a low-rate business loan of up to £5,000 (and accompanying expert advice) has just been extended to anyone up to the age of 30, and there are now calls to remove the age limit altogether.
For more mature businesses, there a multitude of new support schemes such as the Enterprise Finance Guarantee, whereby the government guarantees to secure loans from lenders to businesses typically seen too risky for a conventional loan. Myriad other mechanisms have sprung up to support businesses to grow, among them the MentorsMe mentorship service, the GrowthAccelerator initiative and the various National Insurance holidays.
Put simply, the support for entrepreneurs clearly isn’t lacking. Indeed, many of the schemes are highly effective. Research indicates that businesses which use support are much more likely to grow than those who spurn it. As I alluded to in my last blog post, the real problem is that businesses either aren’t willing to grow or aren’t event aware of the support that is available to them.
According to Lord Heseltine’s acclaimed report on the UK’s economic competitiveness, 29 per cent of businesses experienced more or less static growth in employment (-1 or +1 per cent) over the last 3 years. Echoing these concerns, Lord Young’s report on business growth released just yesterday cited figures showing that only a quarter of SMEs have ‘a substantive ambition to grow’. Nor is the situation improving. Fewer SMEs in 2012 said they aimed to grow than said so in 2010.
Contrary to what you might expect, the way out of this conundrum is not necessarily to expand support for entrepreneurs. In his report for the then Conservative shadow cabinet in 2008, the entrepreneur Douglas Richards lamented what he, perhaps justifiably, perceived to be a bloated enterprise support industry. He calculated that there were 3,000 government-led business support schemes in existence, costing some £2.4bn to the taxpayer (albeit at 2003 figures). The result was that entrepreneurs were left bewildered at the sheer amount of options available to them. Judging from the recent conversations we’ve had with young entrepreneurs for our own research, this is still very much a concern.
So, to return to the challenge, if more support isn’t the solution then what is? Two answers may be found in Lord Young’s latest report. First, although not one of his most exciting proposals, the recommendation that 5 per cent of the budget of future initiatives be spent on marketing and advertising could be genuinely transformational. As he states, one of the reasons why the old Enterprise Allowance Scheme was so successful is because it had a simple message and some hard-hitting marketing that helped it to go viral. (If only something like the National Insurance holiday had this, it may not have had the disastrous take-up rates that were reported last week).
Now while this gets at the people who want to grow their business but don’t know how, it doesn’t necessarily do anything to move the many entrepreneurs who currently lack the ambition to expand. This is where the second proposal comes in. Lord Young has outlined plans for a £30m Growth Vouchers programme to find “innovative approaches to help SMEs overcome behavioural barriers to increasing growth.” The detail is notably lacking, but the intention of using behavioural science to encourage more entrepreneurs to expand their operations and take on staff is a compelling one (and something the RSA might have something to contribute to).
Neither of these proposals sound incredibly daring, but they could potentially leave a bigger mark on the growth intentions of the country’s SMEs than the rest of the report’s recommendations put together. Whatever the direction of enterprise support over the coming years, the less talk of “unleashing” and “unlocking”, the better. In the end, it’s meaningless if there’s nothing waiting to be set free.
How challenging is it for businesses to get their hands on finance?
The reason I ask this question is because I have nagging doubts about the recurring media headlines reporting that large numbers of SMEs are being denied the necessary credit to expand, and that the only way to create employment and return to economic prosperity is to force banks to ‘get lending again’.
No doubt the government subscribes to this view. It’s why only last week they extended the Funding for Lending scheme to 2015, and revised its terms to include more generous incentives for banks to dish out loans to their business customers. And on the face of it moves such as these are understandable. Research released this week by the Business Finance Taskforce, for instance, indicate that only 45 per cent of small firms received the funding they asked for from banks. Other surveys say much the same thing.
So why the scepticism? It’s not that I don’t think firms couldn’t benefit from finance – many no doubt would. Rather it’s that large numbers of businesses don’t have the confidence and ambition to expand their operations. In other words, the problem isn’t so much supply as it is demand. As the Barclays economist, Simon Hayes, said in response to the FLS expansion, “confidence is the elusive factor.”
Yet it’s not just cautiousness among CEOs and entrepreneurs that has cut back the demand for finance. Many of the young entrepreneurs we interviewed as part of our Disrupt Inc. research told us of how they wanted to grow their business but were reticent about relying on external finance, in part because they thought they could achieve their ambitions slowly but surely on minimum costs. Savings were often the preferable source of income. The same reasoning could be holding more experienced entrepreneurs back from applying for finance.
Finally, isn’t one of the biggest problems simply a lack of good ideas? When we hear stories of businesses being rejected by bank managers there can be an implicit assumption that the entrepreneur in question was entitled to the loan. But what if the business idea didn’t have any legs? It’s sounds obvious, but sometimes we have to remind ourselves that the supply of finance is dependent upon an equally good supply of feasible business propositions that deserve access to it.
Having interacted with lots of managers who run grant and equity programmes, one of the key challenges facing them is a set of poor, half-baked ideas. Indeed, it’s one of the biggest obstacles that will face the Big Society Bank. What we don’t want to see – but what is already happening in the third sector – is funding bodies giving money to ventures that have no chance of succeeding. That is neither good for the entrepreneur or the institution dishing out the capital.
So while we rightly lament cases where growing SMEs genuinely can’t get access to the funds needed to grow, create jobs and compete on the world stage, we should try and bear in mind that not everyone wants more capital, nor be in a position to use it effectively.
In this guest blog, Tom Ravenscroft describes how the organisation he founded, Enabling Enterprise, is working hard to take enterprise education to the next level. Click here to find out more about their activities. Follow Enabling Enterprise on Twitter: @enablingent
Enterprise education is not new or exciting. It appears less fashionable than five years ago, but the need for it is greater than ever before.
My personal engagement with enterprise education began as a new secondary school teacher in Hackney, East London in 2007. With my colleagues, I was deeply worried by the lack of basic skills demonstrated by many of our students – students who, at the age of 15 or 16, were unable to work in pairs, organise themselves to complete work, or speak in front of their peers in class. Coupled with their limited experience of the working world, it felt an abdication of responsibility to send them out into the real world so ill-equipped.
And the challenge certainly wasn’t just in my classroom: at the beginning of 2013, youth unemployment grew to over 20%, whilst the chorus of business concern about the employability of our school leavers only grows.
So, what’s gone wrong?
I didn’t mean to leave teaching to run a social enterprise. And a cursory glance might suggest that this is already a crowded field – why not just take up some of what is already out there?
I set up Enabling Enterprise in 2009 because I felt that there was a gap: for bringing enterprise education into the classroom, and side-stepping the false dichotomy between teaching knowledge and teaching skills.
There are some brilliant organisations out there, driven by the belief that enterprise education can and should contribute a vital element to children’s education. But one of the challenges is that schools sometimes acquire enterprise education programmes as they would collect badges – with variety being the most important thing.
And there is a danger of mistaking what is most glamorous for what is most effective.
At Enabling Enterprise we have been grappling with exactly these three problems over the last four years: How can enterprise become a real core part of the curriculum? How do we ensure that we’re not just another “badge” for schools? How do we make the development of enterprise skills as rigorous as acquiring knowledge?
Enterprise in the classroom:
We believe that effective teaching and learning, and the broader development of students’ skills, world experiences and aspirations go hand in hand.
To make this a reality, we partner with 25 top businesses including PwC, IBM and UBS to create year-long courses that teachers can deliver in their own classrooms, in the form of “lesson-time projects”. These projects focus on “learning by doing” – developing English skills through writing an anthology, learning Maths through a construction challenge, or learning about IT by creating their own web-based start-up.
Outside of the classroom, students have the opportunity to visit a business partner each term, meeting employees and linking their projects to the “real world”.
The model has been designed to be highly scalable by mobilising and equipping teachers to embed practical learning and skills development rather than trying to lead on all the delivery work ourselves. The result is that 4 years since our inception, we are working with 19,000 students across 130 schools.
The second challenge, is that to move beyond just being a “badge” we need to have a coherent and systematic approach to encouraging enterprise from a young age.
There is a natural tendency to bundle up “enterprise” with “employability”, CVs and job applications. But there is growing evidence that by working from the age of 6, students develop the resilience and social skills that provide the foundation to their future success, twelve years later.
So we design programmes that systematically embed enterprise projects, complemented by business trips and challenge days, for students from Year 1 through to Year 13. At the beginning, the focus is on basic social skills and resilience. As they progress, the projects become more ambitious – fundraising, designing new toys, or running a café. By secondary school, students work on longer-term, structured projects like setting up a small business or a social enterprise by the sixth form.
Measuring the impact
Finally, to make it matter, you have to measure it: We have put a lot of energy into creating a framework for assessing progress towards our mission that is as robust an assessment as any other learning. To do this, we have worked with employers including Freshfields and UBS to identify what students need by way of skills and experiences at the point they leave school. This highlighted eight skill areas, including teamwork, resilience, presentation, leadership and personal organisation.
For each of these areas we then created a system of levelling that meant we could work backwards from this end goal, so that we can see quantitative progress made at each age. For example, by the end of a year on our programme we would want to see that an 18 year-old can set ambitious targets and understand the key milestones towards achieving them, whilst for an 11 year-old, we would just want them to be able to set targets with help from their teacher.
We use a combination of student self-assessment and teacher validation to level students at the beginning and end of the year, and in so doing are able to check that the projects are helping our participants progress towards successful futures.
And looking forward…
The journey for Enabling Enterprise is only beginning. While we work with about 19,000 students across 130 schools today, that pales against the challenging backdrop that millions of young people face.
But all organisations with an interest in the enterprise education of children and young people can achieve even more. We need to remember to make enterprise a key part of the curriculum, to start young and keep going, and to assess our progress rigorously and honestly.
Last week the RSA and RBS jointly launched a new report, Disrupt Inc., which looks at the changing behaviours of young entrepreneurs. Visit our Enterprise page to view the report and find out more.
With the economy stagnating, living standards falling and levels of unemployment stubbornly high in some areas, it is little wonder that building an ‘aspiration nation’ has become one of the central underpinnings of this government’s policy agenda. As David Cameron put it at the 2012 Conservative Party conference, “Aspiration is the engine of progress. Countries rise when they allow their people to rise. In this world where brains matter more, where technologies shape our lives, where no-one is owed a living … the most powerful natural resource we have is our people.”
This ‘exhortation for aspiration’ has been matched by practical steps to help more people start up and run their own business. A significant amount of enterprise support has been directed at young people in particular, around 1 million of whom are still without work. Among other initiatives, the government and its partners have helped to establish the StartUp Britain and Business in You campaigns, the StartUp Loans scheme, the Enterprise Finance Guarantee scheme and the MentorsMe programme. We are also witnessing the growth of many non-state enterprise support initiatives, particularly within universities.
The question is, are these initiatives actually working? At first glance, it seems that perhaps they are. The number of young people in the early stages of planning a venture has increased sharply over the past couple of years. The graph below, put together for an RBS report by the Professors Mark Hart and Jonathan Levie, show that early-stage entrepreneurial activity among young people is at its highest level in more than 10 years. It is now almost equal to the rate among the older generation.
Look more closely, however, and we can see that there are at least 2 key issues still blighting the landscape of young enterprise in the UK. The first is that there remains a large gap between the number of young people who say they wish to start a business and the number who are actually doing so. While 10 per cent say they wish to start their own venture, only 3 per cent are making the leap. The second issue is that many of those who do create a business cease trading not long afterwards. One estimate is that a third of young entrepreneurs drop out within a year of starting up, compared to 1 in 10 of those over 30.
Anyone seeking to stimulate young enterprise in the UK therefore needs to think long and hard about how these kinds of hurdles can be overcome. It is of some concern then that our latest report, Disrupt Inc., reveals that many enterprise support initiatives may not be up to the task. Informed by conversations with dozens of young entrepreneurs, our findings indicate that much of the support today tends to be grounded too heavily in supporting one ‘type’ of young entrepreneur at the expense of other types who follow less conventional, but increasingly popular, routes to start-up.
The level of debate over the availability of start-up finance, for instance, disregards the large proportion of young entrepreneurs who are reluctant to rely on loans, and who would prefer to grow their business slowly but surely on a shoe string budget. Likewise, the deafening noise about the importance of having experienced mentors distracts us from supporting all those young people who prefer informal assistance from peers. More generally, the language and imagery of entrepreneurship used by some in the government and media may inadvertently put it on a pedestal and serve to discourage young people from starting a business.
If we want to help more young people start and run successful businesses then we need to begin recognising the wide variety of entrepreneurial journeys that they take. Without challenging crude stereotypes and reengineering enterprise support to cater for this new reality, we run the risk of wasting the potential of thousands of would-be young entrepreneurs.
Have you heard of the Universal Credit?
It’s designed to make life simpler. Benefits are rolled into one, removing complexity for government departments and other agencies. Real-time reporting of income and tax deductions allows people to receive more accurate benefits, meaning work should always pay. And by making PAYE “quicker and easier” to administrate, HMRC estimate it will save employers some £300m per year.
In theory, everyone should be a winner. Yet in practice, it seems as though the universal credit is fraught with problems. The Joseph Rowntree Foundation has already pointed out that the Universal Credit is likely to have a detrimental impact on low income households, in part because of the complicated stipulations tied to aspects of the UC, and in part because of difficulties caused by switching to monthly benefits payments.
This much is well understood. Far less attention, however, has been paid to the implications of the UC for employers and employment practices. According to the Federation of Small Businesses, the implementation of real time reporting of wages and tax deductions is likely to put a significant strain on small firms, a third of whom are said to be unaware of the changes they need to make to comply with the new system. According to a recent Financial Times article, there is a concern that many small businesses simply won’t have the in-house expertise to manage the payroll changes.
This isn’t just an inconvenience and added time pressure for small businesses. It also raises the prospect that many self-employed workers will become reluctant to expand their business and hire new employees for fear of the impending complexity. Given that more unemployed people now find work in SMEs than in large firms, the impact of the UC could be very significant on overall recruitment practices.
Alongside this, there are worries that the new benefit changes may encourage the self-employed to cease trading entirely. Under the new system, those wishing to be classed as self-employed will need to attend a ‘gateway interview’ and earn the equivalent amount as someone working full-time on the minimum wage (the ‘minimum wage floor’). For the many self-employed workers whose business comes in peaks and troughs, whether that be a filmmaker, artist or start-up tech entrepreneur, this will mean the possibility of losing their eligibility for benefits. All in all, the Universal Credit may serve to discourage people from starting up their own business, or indeed push those who already have into the informal economy.
If the above has confused you, then think for a moment what it means for those who are new to starting a business, or who are already wavering on whether to hire in a new hand to help them with their work. Time will tell whether the Universal Credit is a help or a hindrance to business and employment growth, but the signs right now are ominous.
As is the case with the Work Programme, my sense is that the government has seriously underestimated the time and effort that is required to implement such a significant welfare change. However good the policy is in principal, the execution will always be a hatchet job if rushed through for political expediency.
And so the ‘productivity puzzle’ continues. Earlier this week the ONS published new figures showing that employment rose by 154,000 in the last quarter of 2012, taking up the total increase over the year as a whole to half a million. This is despite growing expectations that Britain will slide back into recession for the third time since the economic downturn. Indeed, the size of the economy in the last quarter was the same as it was a year beforehand. So what’s going on?
Up until fairly recently, most commentators have put the low growth-high employment phenomenon down to the increasing number of part-time positions made available, at the expense of full-time ones. The argument runs that the number of people in work may not have fell so sharply as expected, but the number of hours worked certainly will have done. This may have been true at the outset of the recession, but the latest tranche of ONS figures now seems to contradict this claim. The number of full-time workers increased by 197,000 in the last quarter, whereas the number of part-time ones fell by 43,000.
The real reason why employment rates have remained so buoyant is rather down to a squeeze on wages, particularly for those in lower skilled jobs. Average earnings have risen by only 1.3 per cent since a year ago, whereas inflation is more than double this. Nor is this a recent phenomenon. The Institute for Fiscal Studies, for instance, reported that in the 3 years leading up to 2010-11, average household income (pre-tax and benefit) fell by 7 per cent in real terms. Wages now only represent 53 per cent of GDP, down from 65 per cent in the mid-1970s.
This begs the question of whether low wages are a price worth paying for low unemployment. Or to put it a different way, can we live with inequality, if it means having more people in work? Speaking yesterday at the RSA, the economist and author Stuart Lansley reported that this is exactly the trade-off that Bill Clinton and Tony Blair contemplated during their time in office in the late 90s. Either they were to create high-skilled economies and societies based on efficiency, or they deregulate, pare back the state and settle for a highly competitive market economy grounded in flexible labour (with inevitable by-product of inequality). The rest is history.
While some may view this as a necessary deal with the devil, in reality it is no such deal at all. The benefits have been revealed as a myth, the silver linings of inequality as an illusion. Take poverty, for instance. As a result of the squeeze on wages, it is now the case that there are more children in poverty who are living in working households than there are living in workless ones. The damage being inflicted on families was masked throughout the early 2000s by an increasing reliance on credit. The consequence is that now something like a third of family income among low earners is spent on debt repayment.
As Lansley pointed out yesterday, this is not just bad for the individuals directly concerned, it is also for the wider economy. Demand contracts, the economy grinds to a halt, and we ‘lose’ a decade or more of prosperity through stasis. Moreover, the inequality created by low skilled, low wage jobs induces societal fragmentation, distrust and intermittent bursts of anger from the most dispossessed.
So what is the way forward? High quality jobs that pay a decent wage is a good starting point. For those who say that businesses can ill afford it, the Resolution Foundation has argued persuasively that average wage bills for the larger companies would increase by only a few per cent. By implementing a system along the lines of the Living Wage, they may even benefit by way of increased productivity and retention rates. Indeed, this is the rationale for the ‘Living Wage City Deals’ being proposed by some.
Yet we have to do more than just fiddle with wages. We need a root and branch rethink about the kind of society we want to live in, and the type of economy and workforce we want to build. Some like Will Hutton, for instance, have mooted the idea that we should follow a model of ‘flexicurity’, whereby flexibility for employers is matched with high quality jobs that are backed by a strong system of education and welfare protection. Labour’s announcement today that they are considering implementing a ‘contributory principle’ for unemployment benefits suggests this is finally being taken seriously.
A senior bod in the think-tank world once said to me he’d throw himself out of the window if he heard that someone had started another mentorship scheme.
I wonder how then he would have reacted to yesterday’s announcement by BIS that the drive to recruit small business mentors through the Get Mentoring initiative had reached its target of 15,000 volunteers. Probably with an exasperated sigh. But why should a national mentorship scheme prompt such a reaction? Isn’t it a given that it’s useful to have someone experienced to look up to and receive advice from, regardless of the context? The answer, of course, is yes. The question is whether the majority of mentorship schemes actually do this at all well.
As it happens, the Sutton Trust yesterday released new research findings which indicate that certain types of mentoring can be worse than no mentoring at all (hat tip to colleague Sam Thomas for the link). Their analysis shows that the impact of mentoring varies widely, but that on average it is likely only to have a small impact on educational attainment. In many cases, mentors drop out of programmes soon after establishing contact with a student, thereby damaging their academic chances. Moreover, the benefit that some mentors bring is rarely sustained once the partnerships come to an end.
Academic mentoring is no doubt a very different ball game to business mentoring. Yet the same concerns exist for both. Throughout the many interviews we’ve undertaken with young entrepreneurs, we’ve come across numerous instances of bad mentoring experiences. This was often because the business mentor that was matched to the entrepreneur came from a completely different industry background. One social entrepreneur who was establishing a venture to support projects in the developing world told of his surprise at being matched with an ex- director of Transport for London. We also encountered various reports of significant personality and mindset differences between the mentor and mentee, created in part because of a wide age-gap between the two.
Over the course of my time at the RSA, I’ve come to realise that meaningful social connections – something mentoring has to be founded on – can seldom be forged through basic matchmaking schemes. To put people in a room and hope they’ll get on, see eye to eye and develop a meaningful lasting relationship is naïve and idealistic. Of course some people like it; there are those who take easily to such formal networking schemes. But for all those who can rely on rough and ready connections, there are many more who depend upon more intelligent matches to find an appropriate advisor. The likes of Business in the Community and the Social Innovation Camp have good models which show that this is achievable – hopefully the Get Mentoring initiative can learn something from them.
Still, on the basis of several discussions with young entrepreneurs and experts in the field, my sense is that organic, informal connections are the best way for budding young entrepreneurs to get the information and advice they need to make their venture a success. Creating the ‘shared spaces’ where those kind of natural connections can occur should therefore be a priority in the coming years. How you actually do that is another question.
Buildings like the RSA are good convenors. Likewise, places such as the Hub can spark useful serendipitous encounters. Another good example, although slightly more formalised, is that of entrepreneur supper clubs. The Un-Restaurant organised by Lime&Tonic, for instance, brings company founders together to socailise and thereby indirectly forge useful connections. Perhaps something similar could be organised for young entrepreneurs.
It’s food for thought.
Life is full of problems. Consequently, it’s also full of problem solvers. But how many problem solvers is too much? And how do you know when you’ve reached that critical point? When it comes to the support available for young entrepreneurs, it appears these questions are still waiting to be grappled with.
I’ve just been reading a paper on enterprise support that was put together by the businessman Doug Richards for the former Conservative Shadow Cabinet. The central message to come out of the Richards Report was that the ecosystem of enterprise advice and guidance had ballooned under the Labour government and turned into a sprawling, confusing and not to mention expensive morass. To take a few figures cited in the report, 3,000 small business government support schemes were in operation in the mid 2000s, only 4.4 per cent of FSB survey respondents said they had used government business support, and the total amount spent by the state on such schemes ran to nearly £2.5 billion (at least, this was the case in 2003/4).
Informed in part by the paper’s findings, when the Coalition government finally came to power it took a number of steps to reduce the cost and complexity of the support available to existing and would-be entrepreneurs. Primary among these efforts was to terminate face-to-face Business Link centres across the country and replace these with one central hub for information and advice. In a similar move, the RDAs were shut down and replaced with new LEPs that were designed to be led and run by businesses, not government. In sum, the government moved from a position of offering direct support to the enterprise community to one of creating a more favourable framework that would place others, for instance universities and libraries, as the main providers.
While these changes were arguably necessary, if not popular with everyone, they failed to get to grips with the same issues of duplication and confusion that have been inflicting the support ecosystem of third and private sector providers.
Throughout the recent workshops we held with young entrepreneurs across the country, time and again we heard the same message that the help provided to those who want to start and grow a business is often, somewhat paradoxically, both disjointed and duplicated. For example, young people will find that both their local library and their university will offer a mentorship scheme, while only the library will provide desk space and only the university will provide grant loans. This can be problematic for the young person who is left bewildered by the options available to her/him, and it may also be inefficient and wasteful since different groups are effectively providing the same service.
Choice is of course a good thing. Young entrepreneurs, and all entrepreneurs for that matter, should be able to pick and choose between different services to suit their needs. But as it stands, the support sector doesn’t operate like a free market. Current provision is dictated by funders, not by the demand of young people seeking services. In other words, the choice that young entrepreneurs face in picking services is to an extent fabricated. In theory big funders, whether national banks or philanthropic foundations, should be able to make informed decisions about which support services to assist based on the result of evaluations. Yet as the Richards Report pointed out, not enough support services conduct rigorous assessments of their activities.
So what to do about it? How can we create an ecosystem of young enterprise support that offers choice and high quality services to end users, and which sees organisations working together to minimise duplication and make the journey of enterprise support as seamless as possible?
A few ideas are already floating about in this space, but one particularly attractive option to have cropped up in a few of my conversations with people in the sector is that of a new kitemark accreditation scheme for support services. This could be similar to the new Project Oracle programme in London, whereby youth services in the city are taught how to undertake basic evaluation and are judged against an agreed grading system (running from 1 to 5). The idea is that this would help funders make more informed decisions about where to channel their money, and that it would also provide some indication to young people about the quality of the services they might receive.
It’s early days but it will be interesting to see if this has any legs. In the meantime, I’d be keen to hear of other people’s ideas.
Yesterday morning the RSA and RBS hosted a short and sharp seminar to discuss a new project of ours looking at the ‘lived experience’ of young entrepreneurs. The goal of this piece of work, which we are half way through, is to provide lessons for how young enterprise support could be enhanced by better understanding the real (and what we supposed to be the unconventional) ways in which young people start and run their businesses. The research is primarily being undertaken through a series of qualitative interviews with young entrepreneurs, as well as with experts and practitioners in the field.
Our hypothesis when commencing this project was that our assumptions about how young people get their businesses off the ground – whether in terms of securing finance, using social media, or working with customers – is somewhat out of kilter with the reality. Part of the reason being that we rely quite heavily on surveys to find out about what young entrepreneurs think and feel, arguably at the expense of examining their actual behaviours.
Here are 4 of the top-line messages from the seminar:
- From ‘entrepreneurial’ to ‘venturesome’ – 37 years ago, Howard Stevenson from Harvard Business School coined the term entrepreneurialism as ‘the pursuit of opportunity without regard to resources currently controlled.’ Using this definition, we can start to see entrepreneurial-like behaviours occurring in unconventional places, for instance within the public and third sectors, or within large organisations (aka ‘intrapreneurialism’). If we could broaden our terminology, would it open up more opportunities to encourage this type of behaviour? One way of thinking about it may be in terms of ‘venturesome’ actions (look out for an upcoming article on this by Adam Lent).
- Get to grips with an unfavourable culture and mind-set – It was widely agreed that some of the most significant barriers preventing people from becoming entrepreneurs relate to a culture that is not conducive to enterprise. There are assumptions about risk and the price of entrepreneurship that are misconceived, for instance that failure will be seen negatively by future employers, or that entrepreneurs earn less than the average PAYE employee. The question is how can we overcome this entrenched mindset? Here we tend to fall back on role models, but perhaps there is also a place for legislation in sending out a pro-entrepreneurial message and setting the right kind of tone that institutions such as councils, schools and universities could follow.
- Finance is not the be all and end all in the age of the lean entrepreneur – One of the most interesting findings emerging from our interviews was the degree of enthusiasm among young entrepreneurs for a bootstrapping business model. Many would rather try to make ends meet on a minimum amount of money (often using their own savings) than take out a loan from a high-street bank or government scheme. This is particularly curious given that access to finance nearly always comes to the top of the list of things which young people perceive as preventing them from getting up and running. The general feeling of those who attended the seminar was that this rang true with their own experiences. Would young would-be entrepreneurs be better served with micro-loans that enable them to build a prototype and test it at the market?
- Stoke demand for young entrepreneurs’ products and services – Government efforts to support young enterprise are typically centred on the likes of campaigns, finance, mentorship schemes and entrepreneurial education; all of which are on the ‘supply side’ of support. There may be an argument for turning the idea of support on its head and using the purchasing power of central government, local government and large corporations to stoke demand and create a market for the services/products of young entrepreneurs. One option is to build young enterprise into supply chains, for instance by altering council procurement exercises to favour young entrepreneurs. However, this may be complex and unfair to other firms in the market. A simpler and less controversial solution would be to address the issue of late invoice payments, which often create headaches for young entrepreneurs with limited cashflow.
A report detailing the full findings of our project will be published early in the Spring.
Benedict Dellot is a Senior Researcher within the Enterprise team of the RSA’s Action and Research Centre. @benedictdel
What do people need to begin and run a successful business? A decent idea for a start. No doubt some degree of confidence and a smidgen of luck. Perhaps a guiding hand and some innate business nous, too. But what about money?
Today’s announcement of an expansion to the Start-Up Loans scheme suggests the Government believes start-up capital to be integral to getting businesses off the ground. Previously limited to those under the age of 25, the changes mean that anyone below 30 will now be entitled to apply for the loans of up to £5,000. Like their younger counterparts, the newcomers will also be provided with a formal mentor who will guide them as they grow their operations.
For all the song and dance, this boost to start-up capital should be greeted with a note of caution. It has already been pointed out that only a few hundred loans – the equivalent of £1.5 million – have been channelled to people since the scheme’s inception. This is despite having a budget of some £110 million over 3 years and a target of delivering 2,500 support packages by March 2013.
Part of the reason for the low take-up may be a lack of awareness of the scheme among young people. Indeed, unless you’ve consciously set out to find support to start a business it’s unlikely you’ll stumble across funding sources of this kind (encouraging people to even consider becoming an entrepreneur is perhaps the greatest challenge for policymakers). Yet for all those who haven’t heard of the opportunity, there must be thousands who have (and who fit the bill) but didn’t decide it was right for them.
One explanation for this lies in the rise of the lean start-up culture witnessed among fledgling entrepreneurs. As part of a new RBS/RSA research project, we’ve been conducting a number of interviews with young entrepreneurs to identify whether there are any interesting trends emerging in the way their cohort are starting and running businesses. One of the most interesting findings we’ve come across so far is that bootstrapping is perceived as the easiest and most attractive means of getting an idea off the ground.
This is driven in part by young people’s reluctance to be saddled with a relatively substantial loan (the low rate doesn’t seem to have made much difference), and in part by developments in Web 2.0 which have reduced sunk costs and made it easier to take an idea and turn it into a marketable product in a relatively short space of time. In an age when young people can have an idea, build a website and market a product in the short space of an afternoon’s work, why would they go through the hassle of preparing a detailed business plan (based largely on guesstimates), which is normally guaranteed to be rejected by the first few funders they come across? As many of the people I spoke to said, better to build the business first and then go after the capital when you’ve proven yourself and are ready to scale.
The problem with the Start-Up Loan scheme is that it doesn’t accommodate this emerging kind of business model. The result is that not only does it fail to attract budding young entrepreneurs (and diverts valuable funding that could be used elsewhere e.g. for accelerators), it may also damage the prospects of some of those who actually take part. The danger, as pointed out to me a few times, is that these entrepreneurs build the business around the loan, when it should have been the other way round. Indeed, one of the practitioners I spoke to who’s supporting young entrepreneurs said he rarely mentions the Start-Up Loans scheme to those coming through his doors for fear it will distract them from the task at hand: turning a good idea into a profitable product.
Of course, it would be daft to say that loans don’t have a place in supporting young enterprise. Finance is nearly always at the top of the list of survey responses when it comes to what prevents young people from setting up a business, and there are some industries like manufacturing where sunk costs merit a sizeable initial investment. Yet even with these qualifications, it is obvious that ploughing lots of money into something increasingly shown to be out of kilter with the way young people approach entrepreneurialism is not, in Cameron’s words, the best way to back “all those young people who want to work hard and get on in life.”