Last month saw the release of the latest data from the Global Entrepreneurship Monitor, a major annual international survey of entrepreneurial behaviours and attitudes. What makes this dataset so powerful is the size of the sample (2,000+ people respond in the UK alone) and the fact that the data goes back over 10 years. It also has an extensive set of questions that touch on feelings and attitudes not covered elsewhere. So it’s worth a gander if you’re interested in enterprise, small business and other things of that ilk.
Here are three of the biggest insights from the 2013 results to be aware of:
#1 The overall level of entrepreneurial activity has dipped (for now)
The graph below shows the numbers of adults engaged in what is called ‘early-stage entrepreneurial activity’ (in other words, the number of start-ups). As you can see, the proportion of people in the process of starting a business fell quite sharply between 2012 and 2013, from around 10 per cent to just over 7 per cent.
Similar falls also occurred in other measures of entrepreneurial activity. For instance, the number of people who say they intend to start a business in the next three years fell by around a third. Yet one swallow doesn’t make a summer, and the 2013 figure remains above that seen in the early 2000s. Indeed, statistics from the Labour Force Survey (LFS) suggest that self-employment has continued to increase in the last year (and that the growth has even sped up).
It’s also worth noting that measures of ‘opportunity’ entrepreneurship (entrepreneurs who want to be in business) fell just as much as ‘necessity’ entrepreneurship (entrepreneurs who do not want to be in business). If the fall in entrepreneurial activity was mainly down to reluctant entrepreneurs returning to a typical job, we would have expected necessity entrepreneurship to have taken most of the hit.
#2 But new types of entrepreneurs are emerging
The average self-employed person is male and between the ages of 35-49. But that stereotype is being chipped away as several other demographic groups become more prominent. We know there has been a dip in entrepreneurial activity all round (see above), but three groups in particular appear to be better at weathering the storm.
The first is women. The graph below shows that while both male and female start-up rates have fallen since 2012, the latter has proven much more resilient. This is also borne out in data from the Labour Force Survey, which shows that the number of women in self-employment has increased by over 40 per cent since 2000, compared to 20 percent for men.
The second is older people. The graph below shows the proportion of 50-64 year olds who are engaged in any kind of entrepreneurial activity (the black arrow shows TEA i.e. those in the early stage of starting a business). As you can see, there has been a substantial increase in the last few years alone. I’m afraid I don’t have data for the over 65s, but the LFS statistics show a huge increase in self-employment among those in their retirement age.
The third group is young people. According to GEM, the number of young people in the early stages of starting a business has nearly doubled, moving from around 5 per cent in 2010 to 9.5 per cent last year.
#3 The number of high-growth businesses is atrophying
Ask any expert who knows something about entrepreneurship and they will say that the UK doesn’t have a shortage of start-ups. Rather, it has a shortage of scale-ups. The below table shows the number of firms in comparable countries that expect to create a large amount of jobs over the next 3 years. What is striking is that the UK has gone from the country with the highest proportion of high job expectation-firms to the country with the lowest. Whereas a quarter of our firms were once major job creators, now it is close to 15 per cent.
I hope that’s some food for thought. You should be able to find the full results of the Global Entrepreneurship Monitor survey on their website in the coming weeks. Thanks to Mark Hart of Aston University and his team for allowing us prior access to the data.
P.s. Keep an eye on this blog for the results of our own RSA/Etsy survey on microbusinesses, conducted in partnership with Populus.
The RSA and Etsy are exploring similar themes in a new project, The Power of Small. Click here to find out more.
Follow Ben Dellot on Twitter: www.twitter.com/BenedictDel
If the test of a meaningful policy is that it can be argued against, what to make of yesterday’s announcement by the Prime Minister to cut more red tape for small businesses?
This was one of several new measures designed to boost growth ambitions among the self-employed. Less than a fifth of SME owners have a substantive ambition to grow, and around a third have experienced more or less static growth over the last 3 years. The problem is even more pronounced among one-man bands. Recent research from the Department for Business, Innovation and Skills (BIS) showed that only 5 per cent of sole traders increased staff levels over the 6 year period from 2007 to 2013.
Clearly no one disputes the challenge. It’s just the way we’ve dealt with it over the years that raises questions. The idea that cutting more red tape will stimulate recruitment is fanciful: not one business owner we’ve spoken to over the past few years has raised the issue of regulation as a fundamental barrier to growth.
Nor has their been much appetite for wage subsidises – another state-backed initiative. Take the holiday in National Insurance Contributions that was launched late in 2012. In theory it should have been an attractive proposition for small businesses: recruit new staff and you won’t need to pay anything towards their NI. Yet the take up was very low. The same thing happened to the Youth Contract, which was intended to make it more viable to employ young people by heavily subsidising their wages.
So yesterday’s announcement is not a one-off. Rather it is symptomatic of a wider problem with the enterprise support ecosystem in the UK. Time and again we see state and non-state initiatives that look great on paper – and which make for a decent sound bite – but fail to live up to the hype.
This is not just bad for the businesses who are the intended recipients; it’s also bad for taxpayers (whose money could have been spent elsewhere) and bad for job seekers (who may have found work through a more intelligently designed scheme). But what to do about it?
One starting point is to make sure future business support efforts adhere to three fundamental tenets:
The amount of support available to small businesses has proliferated in recent years. But this has caused issues in itself, with the duplication of services being a particular challenge. On top of this there is little common knowledge of what actually works in stimulating business start-up and growth.
We need to adopt the principles of the Lean Startup model, which involves rapidly testing and evaluating prototype services on a small-scale before rolling out more widely. A good example is the new Growth Vouchers scheme that was launched yesterday on the basis of a randomised control trial.
Yet this has to be as much about changing culture as process. In short, the support ecosystem needs to be more ruthless, pointing out what doesn’t work and acting to terminate failing initiatives – even if it means upsetting the status quo. It’s what happens every day in other spheres such as education and employment services, so why shouldn’t it happen in the world of business support?
The only thing worse than a poor policy is an excellent one that nobody knows about. The latest RBS Enterprise Tracker survey found that 36 per cent of respondents hadn’t heard of a single one of the 19 initiatives listed. The same problem stands for the government’s efforts to boost lending to SMEs, which were criticised earlier this month by a Parliamentary committee because so few businesses were made aware of them.
So we need to get much better at drawing the attention of business owners towards what’s already available, even if that means spending a decent proportion of the budget on marketing (as Lord Young argued in his most recent review on microbusiness growth). The Prince’s Trust and StartUp Loans lead the way here, with adverts and events that are reaching out beyond the usual suspects to unconventional audiences.
Finance and deregulation are the conventional mechanisms used to stimulate business growth. However we know from the experience of the Youth Contract and National Insurance holidays that these clunky efforts are not enough on their own to influence behaviour.
Part of the reason is that many of the barriers facing business owners are psychological in nature. A research study recently commissioned by BIS found that one of key impediments to growth among the self-employed was a lack of ‘vision’, with sole traders regularly overestimating the costs of growing their business and taking on staff. Alongside this, many are reluctant to step into the unknown or fear letting go of the reins.
No amount of red tape bonfires or extra financial assistance is going to overcome such hurdles. Rather we need to see more initiatives that recognise business owners as humans, and which go with the grain of their frailties and quirks. This is something the RSA hopes to look at in the coming months.
Follow Ben Dellot on Twitter: www.twitter.com/BenedictDel
This is a guest blog from Damian Kimmelman. Damian is founder of DueDil, a London-based technology business that is the largest source of private company information in the UK and Ireland. DueDil was included in Wired magazine’s ten hottest startups in London in October 2013.
The global financial crisis was, says the American forecaster and author of The Signal and the Noise Nate Silver, “a catastrophic failure of prediction”. Governments, ratings agencies, investors all possessed the information that could have triggered safety checks and policy changes. They failed, however, to apply judgment to the data. All assumed that the information was trustworthy or were, to borrow Margaret Heffernan’s iconic phrase, “wilfully blind” to the evidence that it wasn’t.
As we enter a post-crisis era, a new generation of entrepreneurs is re-examining assumptions around transparency and trust. They’re putting openness at the centre of strategy; they’re bringing the power of relationship back into business; they’re providing the full information that enables proper risk-pricing. They are – potentially – ushering in an age of true predictability.
For Joel Gascoigne, founder of the social media-sharing start-up Buffer, transparency is his “default” position. Anything that can be shared in the business, is shared. “We have complete compensation transparency and every team member knows each others’ salary and equity stake through stock options,” says Joel. “We go all the way – we share whether we’re fundraising, we share when we have acquisition interest.” The firm even opens up its bank balances and latest revenue numbers.
Over at the mobile payments firm Stripe, founder Greg Brockman is pioneering an “open email” culture. Initially, “the motivation for having all email be internally public and searchable was simply to make us more efficient. If everyone automatically knew what was happening, we needed fewer meetings, and our coordination was more fluid and more painless if we could all keep up with the stream.” And as Stripe has grown, the experiment has moved on. Today, says Brockman, it’s “about both efficiency and philosophy.”
He’s right: transparency is much more than a start-up gimmick. Really strong business cultures are transparent. Where there’s transparency, there’s trust. And, most important, there’s predictability. Counter-parties can take safer, more calculated decisions. Market inefficiencies reduce. On a wider scale, open information creates markets and builds prosperity.
Withholding information, on the other hand, prevents markets from developing. Just look at the lack of transparency in the financial services sector to see what damage opacity can wreak. Humans are built for sharing. In the natural kingdom, it’s our competitive advantage. By sharing and communicating, we build communities and prosperity.
Before the Industrial Revolution, towns and villages were self-sustaining ecosystems. With the arrival of roads and canals, talent started to flow between them. With this came information, insight and industry. In 1989, Tim Berners Lee, frustrated by scientists’ inability to transfer knowledge easily between one another, proposed an open protocol for communicating between computers. This became the information superhighway.
Companies such as Google, Facebook and LinkedIn were born to share the ever-greater volumes of information that flowed through it. It was living proof of Jean Jacques Rousseau’s theory: when we share, we are – collectively and individually – the better for it. These giants of the internet age debunked a common myth: that somehow by withholding information we gain an edge over others. Wrong, wrong, wrong.
Right now, only public companies truly benefit from the open exchange of information. As a result, the UK has an efficient, liquid Stock Exchange that’s the envy of the world. By giving the same transparency and, thus, visibility to privately owned small and medium-sized companies, we could unlock significant economic potential.
According to the disruptive SME finance business Asset Match, the 10,000 private UK companies with £20m-plus revenues have an embedded (ie, illiquid and undiscovered) shareholder value of £300bn. If they had something of the openness and findability of our quoted companies, we’re in serious national uplift territory. “Unlocking 10% of that figure,” Asset Match’s co-founder Ian Baillie has said, “is the equivalent of a small quantitative easing”.
In my view, Britain should aspire to be the world’s most transparent economy. And we should start by opening the data about our privately owned businesses. After all, “private” companies were never meant to be anonymous companies.
The UK’s microbusiness community has grown enormously in recent years. At last count there were over 4.8 million of these small firms, up 500,000 since 2010 and nearly a 6 fold increase on the number we had in the early 70s.
But what’s driven this growth? And perhaps more importantly, will it last?
The most popular theory holds that the entrepreneurial boom has come about largely as a result of the recession. Simply put, in the absence of conventional jobs people have been forced to create their own. This is particularly true for the many highly skilled workers faced with low skilled job opportunities, whose only opportunity to utilise their full talents is by starting a business.
Yet the crash can’t be the only explanation. First, it discounts the long-term factors (microbusinesses have been growing in number since way before the economic downturn). And second – as we’ve heard time and again within our own research – it ignores the many people who are starting a business for largely positive reasons (this is the necessity vs. opportunity / push vs. pull debate).
Based on our conversations with microbusiness owners and experts in the field, we’ve identified a number of other drivers that are equally if not more important in explaining this complex phenomenon – some pernicious and some more benign…
The rise of the niche – We now live in a world where quality, quantity and distribution is guaranteed for the vast majority of goods. In short, scarcity has been replaced by abundance. The result is that consumers are beginning to demand more authentic products and services that make them ‘feel’ something. This in turn has given rise to more niche producers, many of whom will be microbusinesses more able to satisfy the need for authenticity. See here for more information about this trend.
Skeleton businesses – In a bid to cut costs and spread risks, many large organisations have chosen to dispense with their middle management and instead use contractors and freelancers. On top of the this, the jobs that remain have become increasingly precarious. Pensions, bonuses, sick leave, maternity pay – all these pillars of the workplace have taken a hit, particularly in the public sector. The implication is that starting your own business (with all the caveats this entails) has become far more appealing. As one person said to me, “if you’re going to work till you drop, you may as well enjoy what you’re doing.”
Changing demographics – Our society is ageing. So much so that by 2050 the number of people over the age of 80 is expected to triple to 8 million. In the absence of a strong state, it is highly likely that families will pick up the majority of caring responsibilities for their relatives, no doubt causing strains on their working lives. For many, the only means of squaring their duties with their desire to work will be by setting up in self-employment. The same goes for caring responsibilities at the other end of the age spectrum, with many parents only able to look after their young children if they opt for the more flexible option of self-employment – something that may become more commonplace as a result of our current baby boom.
Long term decline in living standards – It is no secret that living standards are atrophying. According to the Resolution Foundation, the income of typical households is set to be 15 per cent lower in 2020 than in 2008; the result of a perfect storm of falling real wages and rising household expenses. Rather than cut back on spending, many people appear to be topping up their incomes by starting part-time businesses, often on top-up of a full-time job. According to the market analysts Keynote, around 1.8 million people now have ‘moonlighting’ businesses. And it’s worth recognising that the purpose of these ventures is not only to meet basic needs, but actually to raise living standards to the level experienced in the pre-crash days. See here for more information about this trend.
New notions of the good life – One of the silver linings of the economic crash is that it has prompted many people to reassess what it is they really want from life. With trust in Westminster, Fleet Street and Big Business at an all-time low, many sense that it is up to them to find their own meaning and purpose. A large number of the fledgling microbusiness owners we met spoke of their desire for more ‘control’ in what they do. Simply put, they don’t want to be subservient to those they no longer trust. Indeed, there’s a real sense that people want to be the authors of their own lives, and that the best way of achieving this is often through the vehicle of a business. See here for more information about this trend.
Technology lowering the barriers to entry – It goes without saying that technology lies behind a great deal of the major social and economic transformations – and the boom in entrepreneurship is no exception. Websites like ebay, Etsy, Skype, wordpress and all the other social media tools are radically lowering the barriers to entry. All that most budding entrepreneurs need now is a few hundred pounds, a laptop and a decent internet connection (at least to begin with). This may not be ‘creating’ entrepreneurship as such, but it is certainly releasing a whole lot of pent up entrepreneurialism that once lied latent in our economy. Nor has the impact of technology fully played out, of course. The growth of 3D printing and ‘sharing economy’ platforms like Airbnb are just two of the innovations that are set to make entrepreneurs out of many more of us.
The RSA and Etsy are exploring similar themes in a new project, The Power of Small. Click here to find out more.
Follow Ben Dellot on Twitter: www.twitter.com/BenedictDel
Where are we now, and where are we going? Twenty or fifteen years ago we could rely on mainstream institutions to answer these questions for us. Westminster, Fleet Street, Big Business – they told us what the good life really meant, and how to live it. Yet fast forward to 2013 and these are no longer the bedrocks of society; their legitimacy sapping in the wake of perpetual scandals, their decline accelerated by the worst economic crash in a century.
In response we have witnessed the emergence of global movements such as Occupy, whose worldwide protests have brought into sharp relief the anger of those who feel dispossessed and let down by the system – one they’d been led to believe would work for them. These collectives have become a voice for the young, but also the disabled, the unemployed and many others at the margins of society. Russell Brand’s recent appearances are just the latest in this long line of protest commentary, saying in public what many are thinking in private.
A common mistake would be to assume that this is where the backlash stops. In reality, it’s just the sharp end of a very thick wedge. A less obvious but arguably more powerful means of expression is now sweeping the UK – namely in the form of entrepreneurship. If protest is about tearing the system down by any means, entrepreneurship is about making the existing one work to your own advantage. 100 years ago we may have done this by joining a church, 50 years ago it could have been a trade union, 20 years ago a charity – now it’s by starting a business. It’s the ultimate form of DIY change-making.
I’m not just talking about social enterprises here. Using business as a vehicle for improving the lives of others is of course an important trend. But what I’m really getting at are the growing numbers of people using business to take control of their own lives; to find meaning and purpose that can no longer be provided by once stalwart institutions. Indeed, according to the Global Entrepreneurship Monitor, 80 per cent of all new entrepreneurs find their work meaningful, compared to 55 per cent of private sector employees. Little wonder that close to 400,000 more people have become self-employed since 2010, and that start-up rates among young people have doubled in the past few years alone.
The obvious retort? It’s the great recession, stupid. When people can’t find a job, they’re liable to create their own with a new business – so forget the meaning mumbo-jumbo. Yet this is a superficial understanding of a deeply complex phenomenon. Yes, unemployment is a key factor, but it is by no means the sole cause. As my colleague Adam Lent argues, entrepreneurial intentions are like a spring waiting to be released, wound ever tightly by a workforce looking for a more purposeful way of living. The economic downturn was simply the trigger releasing these passions. And once pulled, I believe it will be difficult to undo.
Nor is it just the recession that is releasing pent up entrepreneurship. Another phenomenon that has occurred almost simultaneously to the economic crash is the proliferation of new technologies. WordPress, Ebay and Etsy – to name but a few – are radically reducing the costs of running a business. And by doing so they are making visible what was arguably always there. Likewise, new platforms for the ‘sharing economy’, such as Airbnb and Sidecar, are opening up entrepreneurship to the masses, allowing people to sell everything from a week in their spare room to a short ride in their car. No longer do you need a shop front to get going in business; just a laptop, a kitchen table and a few hundred pounds.
What we’re seeing right now is entrepreneurship spreading to the margins. Forget Richard Branson and Alan Sugar. Today’s entrepreneurs have a much more human story to tell. It’s the long-term unemployed person starting up their own gardening firm on the New Enterprise Allowance. It’s the carer creating a business from home to give them the flexibility to look after their loved one. It’s the person suffering from mental illness selling items on online marketplaces to build up their confidence. It’s the middle-aged freelancer spinning out a business from a corporation, the deadening bureaucracy and hierarchy of which they can no longer put up with.
Yes, all of these activities bring in money. But they also bring in a shed load of meaning, an ability to express yourself and an opportunity to make your mark. No wonder that William Deresiewicz wrote that today’s “cultural hero is not the artist or reformer, not the saint or scientist, but the entrepreneur.” No doubt the message of the 21st century is set to be a blunt one: make your own way in life, because no one is going to do it for you. But, perhaps unexpectedly, people of all shapes and sizes are proving that they can rise to the challenge.
This week the RSA and Etsy launch a new project, The Power of Small, which will explore the rise of microbusinesses in the UK. Click here to find out more.
This article was originally featured on The Huffington Post.
This article originally appeared on The Huffington Post here.
Young people are flocking in droves to become entrepreneurs. In 2010, 5 per cent of those under the age of 30 were starting up in business. By 2011 this had increased to 7 per cent. And last year, we’d reached 9.5 per cent – effectively a doubling of enterprise activity in the space of just a few years (see the graph below). Quite a remarkable feat by anyone’s standards.
Yet in spite of these positive signals, we know there is much more to be done to help young people realise their entrepreneurial potential. A particular problem is unfilled aspirations. Only 1 in 3 young people who say they want to start a business are actually doing so. And even if they do start, there’s a strong chance they won’t last very long in their venture. 1 in 3 drop out within their first year of trading, compared to 1 in 10 of those over the age of 30.
So something isn’t quite right – which is why this week the RSA and RBS published A Manifesto for Youth Enterprise. We argue that more could be done to improve enterprise support across a number of areas – from increasing young people’s exposure to enterprise within mainstream media, to building their entrepreneurial acumen within schools, to giving them the resources to start and grow their very first business.
A good place to start is rehumanising entrepreneurship. We know that many young people start up in business to create something meaningful, to gain more autonomy, to solve a problem – and yes, to make money as well. But too often these ‘uses’ of entrepreneurship are sidelined, with enterprise being promoted as an end in itself rather than a means towards a better life. We could encourage more young people to start up in business by showing how it can be used as a vehicle to achieve a variety of life’s objectives.
Related to this, we should be shining a light on the ‘everyday entrepreneurs’ that young people can more easily relate to. A study conducted by the Carnegie Foundation last year found that when asked to visualise enterprise, nearly 60 per cent named a celebrity entrepreneur (e.g. Alan Sugar or Richard Branson) and only 5 per cent a local start up. The problem with these clichés is that they put entrepreneurship on a pedestal, making it seem out of reach for young people. One way of addressing this is by promoting the new types of entrepreneur that are increasingly commonplace – people who are collaborative, stumble into it ‘accidentally’, and are driven by purpose, not just profit.
Many of these are lessons for the media. But more could be done by educators, too. For example, we could expose many more young people to the notion of entrepreneurship by embedding it throughout school curricula, rather than treating it as a bolt-on course that only reaches out to the most enthusiastic and motivated students. Likewise, we should be taking enterprise education outside of the classroom by organising more ‘learning by doing’ activities that happen at the coalface of a business. One international study found that students who participate in mini-company initiatives likes Mycro-Tyco are 50 per cent more likely to start their own company.
But what about those who have already started up? How can we help them to achieve their full potential? A major step here is to get beyond the notion that support is just about the ‘supply side’ -mentoring, advice, finance, workspace and so on. We also need to stimulate the ‘demand’ for the products and services of young entrepreneurs. The fundamental rule that businesses actually need people to buy their products and services if they are to thrive is often forgotten in the debates about support. So we need to level the playing field, for instance by helping young start-ups to find shelf space in large retailers, or by making it easier for them to bid for central and local government contracts.
Finally, there is something to say here about the support ecosystem as a whole. Help for young entrepreneurs has proliferated in recent years – whether that be a new government finance scheme, a national mentorship initiative or local workspaces popping up across the country. But this is creating issues in itself, with the duplication of services and confusion among young people about what is on offer being particular challenges. On top of this, there is a sense that outputs have taken precedence over outcomes, with few services thoroughly evaluating their activities.
What we need therefore is a new era of youth enterprise support. This means not only making necessary improvements in the work of the media, educators, government and others – but also changing the fundamental way in which we see youth enterprise support. In short, it has to become less about numbers and more about results. Bigger has to make way for better; quality needs to take precedence over quantity; and outcomes must come before outputs.
It is only by making this shift that we can help more young people realise their entrepreneurial potential – ultimately for everyone’s benefit.
Follow Ben Dellot on Twitter: www.twitter.com/BenedictDel
Over-confident contestants in pin-stripe suits. Finger pointing tycoons. Birds-eye views of London skyscrapers. Authoritative music. Yes, it’s The Apprentice, which sadly came to a close last week with its TV finale.
While the show usually passes me by without notice, this time round I couldn’t help but pay attention. There’s no doubt it received more limelight than usual, hovering around the BBC iPlayer homepage and finding its way into TV reviews.
The apparent reason? Because the show has two female contests battling it out for the £250,000 golden ticket to entrepreneur-dom.
This shouldn’t be a novelty but it is. Analysis undertaken on behalf of RBS show that men are twice as likely as women to start up in business (see the graph below). Only 26 per cent of self-employed people are women, and this is despite them making up a growing proportion of the UK labour force.
Part of the reason for this under-representation stems from a lack of ‘entrepreneurial capital’. The aforementioned research (which is worth a read) indicates that many women lack the skills/knowledge, financial resource and access to networks that are necessary to start a business. But perhaps an even greater cause of low start-up rates among women is the dearth of female role models in the business world.
Which brings us back to The Apprentice. Is the TV show helping or hurting efforts to boost entrepreneurship among women? In theory, having an all-female final should do wonders. The show is watched by millions of young girls thinking about what they want to do and be in later life. But my fear is that, as is so often the case, the reality is a different story.
The worry with the Apprentice is that it tends to promote a certain ‘use’ of entrepreneurship at the expense of others that are much more common and valuable to women. Most of those taking part in The Apprentice are in business for the fame and the fortune. In practice, however, lots of women (and men!) become entrepreneurs because it gives them, among other things, the freedom to look after children, or the space to act upon a great new idea. In fact, only half of women who are self-employed even call themselves ‘business owners’.
So our concern with The Apprentice should not just relate to who is taking part (male or female) but rather why it is the participants are there in the first place.* If we want more women to start up in business, we need to begin showcasing female entrepreneurs who are able to demonstrate how entrepreneurship can be a vehicle for achieving all of life’s objectives – achieving freedom, acting upon ideas and, yes, making money too.
* Witness Social Enterprise UK’s call upon BBC producers to include more social entrepreneurs in their shows.
What does a business need to make a profit? At the very least it requires people to buy the goods and services its selling. Whether it’s a market stall holder, a clothing manufacturer or a tech start-up, there’s little hope for an entrepreneur to get their venture past its very early stages without a decent number of customers.
This is the fundamental rule of business, yet too often it’s lost in the flurry of discussions around how we can better support more entrepreneurs. Enterprise education, mentoring, training, workspace and finance; all of this is on the ‘supply’ side of the support spectrum. But what’s happening on the demand side?
Earlier this week, StartUp Britain launched a new scheme with Sainsbury’s that may be a forerunner to a new wave of promising demand-side support measures. PitchUp is giving start-ups in the food industry an opportunity to pitch their product to the supermarket’s food buyers in the hope of winning some shelf space in stores. A pilot of a similar scheme run in partnership with John Lewis saw 400 applicants apply for product placements with the department store. There are now plans to run the same competition again this year.
Admittedly, these type of schemes currently only benefit a handful of start-ups. Only 12 businesses were awarded shelf space with John Lewis. But at this stage it’s more about significance than size. Getting a few large retailers to bring fresh new businesses into their supply chains may set the ball rolling for others to do likewise. In an ideal world, we would see individual retail store managers take the onus to run their own competitions with local start-ups.
But this needs to be only one small part of a larger movement towards demand side support that actually creates business for start-ups. Local Enterprise Partnerships, for example, should do more to market the products and services of young firms in their area (as they do for large firms). Likewise, as Lord Young recently argued, central government departments could wield their £230bn procurement power more intelligently to support fledgling entrepreneurs. At a minimum, most organisations – whether public, private or third sector – should agree to faster and fairer payment terms with young businesses.
The obvious rebuke to all of this is that it would give unfair preference to one firm over another. Who’s to say that young firms deserve to be given special treatment? Wouldn’t giving more business to one entrepreneur deprive another of their customers, potentially sinking them entirely?
The problem with these concerns is that they view business too simplistically. For one, they wrongly assume that business is a zero sum game. More customers for one firm does not necessarily mean less for another. Moreover, if done in the right way, these kind of demand-side measures would only be there to stimulate healthy competition and to level a playing field currently dominated by numerous monopolies, as pointed out by my colleague Adam Lent.
With so few mainstream firms reporting ambitions to grow their business over the coming years, helping to bring new and dynamic firms to the fore may set in the train the kind of ‘creative destruction’ so desperately needed in our economy.
This is a guest blog by Servane Mouazan FRSA, founder and Director at OGUNTE, an organisation that helps women social entrepreneurs to make a positive impact on people and planet by enabling them to learn, lead and connect. They do this through: stakeholder connections and introductions; executive coaching; angels training; leadership seminars and award programmes.
RSA Catalyst supported Servane to set up Make a Wave a pre-incubator programme helping women leading social enterprises access angel investor networks and gain financial literacy through a learning and networking programme. Make a Wave was the subject of the first of a series of London Region events aiming to share the learnings of Catalyst-supported ventures with Fellows, helping to scale the work. A twitter account of the event is available at the storify of the event.
Women are not a niche market. They control nearly two-thirds of consumer spending in the world, more than the GDPs of Brazil, Russia, India and China combined (1). Statistics also show that women are more likely to buy environmentally-friendly services and products than men. Yet, despite media attention on women entrepreneurs on one side, and a growing demand for accountability and sustainable business practices on the other, women social entrepreneurs’ contribution in the economy is overlooked by policymakers and there’s a critical lack of academic research and therefore appropriate support. We only start now to push gendered metrics in impact investment and there is still a lot of work to be done to standardise what already exists.
Ogunte’s own research among successful women social leaders globally, shows that the top three barriers to growing social ventures are:
1- “capital punishment”; sustained funding, loans at commercial rates (almost one in four)
2- lack of packaged external support; combination of partnerships, mentoring, supply-chain opportunities and technical assistance (one in five)
3- discrimination and prejudice comes third
We have identified that behind the first barrier identified as poor access to finance lies a lack of financial literacy. In the case of social entrepreneurs, there is confusion about a fast-changing landscape of impact investment and social investment, grant funding and financial products and structures available.
I found today’s event a great space to be able to think. As a one woman show sometimes having that head-space to be able to be inspired and bounce of ideas helps me see where I want to go in ways that maybe by myself I wouldn’t see” – Orode Faka, Infinite Arts&Media
To support this, I invited UCL professor Dr Tomas Chamorro Premuzic to introduce the Meta Profiling tool to highlight the fact that entrepreneurialism is not an occupation but rather a behaviour and that it is made of different components. We know that building a team is essential when setting up in business as a one-man band quickly shows limitations. Meta is great to measure entrepreneurial talent and abilities, to identify the creative and entrepreneurial potential of people, and also to uncover blindspots in people. As with any other profiling tool it should be used cautiously and with a help of a mentor or a coach, you can start a conversation to establish what you need to do to focus on your strengths and not dwell on what you do less well.
Make a Wave participants learned to recognise and acknowledge what their strengths were and where they needed to find complimentary skills. Participants said they’ve transformed their business model during the programme, and have now a different perspective on their skills and their priorities. Some understood their heart was in campaigning and that the model they had created was never meant to become a commercial one. In other cases, some participants have managed to dissociate the campaigning side of their organisation vs. the business side. That involves different sets of skills, and different focus. For instance, you can campaign for a greater awareness in the long-term damage of non-organic cosmetics whilst selling a range of pure skincare. Behind the scenes, at the start-up phase, you will still need to make a decision about the time you spend educating audiences versus the time spent on the logistics involved in building a profitable skincare business; especially if you are just a team of two with limited resources.
Gaining confidence, improving financial literacy
The groups were quite diverse with a variety of obstacles to overcome, different types of services and products to put to market. Being in the company of pre-revenue businesses, you realise how much you have learnt so far and the amount of knowledge you can share. It also forces you to explain simply what your venture is about and look at it with new eyes. One participant leading a mobile banking technology company reviewed her focus and simplified the offering.
Women are good at forecasting and budgeting. The fact is they are more realistic in their forecasts than their male counterparts. The numbers they put in their plans are what they think they are genuinely going to achieve” – Sally Goodsell, ex-CEO of The FSE Group, and creator of Incito Ventures
One of ours guest speakers, Sally Goodsell, previous CEO of The FSE Group, and creator of Incito Ventures, said “Women are good at forecasting and budgeting. The fact is that women are more realistic in their forecasts than their male counterparts. The numbers they put in their plans are what they think they are genuinely going to achieve.” It’s true that it doesn’t always look impressive when you are on the investor’s side. However all investors know that gloating forecasts are rarely achieved!
Getting the most out of board members, mentors and coaches
With investor Ida Beerhalter, participants explored ways to build and manage robust teams, how to go about managing disruptive board members, understand people’s drivers to join a social venture, and how to facilitate conversations in order to keep people interested.
Participants said this pre-incubator was a unique opportunity to learn to ask relevant questions and get quick answers. One participant asked how to get investors to look at what their venture with a view to investing it. So we looked at how you could pull together and recruit members to shape an investment circle. We looked at the philanthropy model: the etiquette; how to approach people – or not; the use of intermediaries; when to start relationships with funders and potential investors; and what to disclose and what to keep for later conversations. (Our guest speaker Suzanne Biegel provided useful guidance on accessing Philanthropic Circles.)
Participants also learned about the difference between having a mentor and a mentoring project. At pre-revenue phase, it’s important to draw a map of how the venture is likely to operate, and gradually test the business model. There’s no point getting a mentor when you are not even sure of what the vision is going to look like. However a coach will be more useful to ask all the essential questions and guide the entrepreneur when they map their learning journey. Once all the working clusters have been established, a mentor can be picked up in specific categories. They will provide specific technical assistance, topical knowledge and relevant connections.
The Make a Wave pre-incubator taught us that we also needed to educate aspiring angel investors. So we created the Activist Angels development programme aimed at people with robust business skills, who want to understand the drivers behind social business. This programme encourages mentors to turn into “Investors” and helps them also understand their own attitude to risk and their decision-making skills. Finally, we are now putting a fund together to invest in the women social entrepreneurs involved in the programme.
To participate in the next Make a Wave round, get in touch with Servane Mouazan FRSA email email@example.com
To get help from RSA Catalyst for your social venture visit www.thersa.org/catalyst
With a triple dip recession looming in the UK, it is increasingly clear that there is a need for fundamental reform of the UK economy. But there is little consensus about how to make this happen. The form of capitalism adopted by much of the West is predominantly based on the achievement of short term growth, with the banking crisis and the UK’s depressed economic performance arguably the result of short-term profit seeking with little regard for the longer term consequences. In the banking sector, retail banks have resorted to unsustainable tactics to make money from their customers, while the extreme financial incentives to increase profit in investment banking have led to dishonest dealings and collapsed markets. Likewise, on the high street, short term market incentives prompt grocers to squeeze their suppliers on cost while driving their customers to over-consume through carefully devised offers and by prompting impulse buying.
How can an economic recovery take place in the context of such unsustainable market forces? The policy response has not proved very helpful. When these sustainability problems arise, the usual government response is to reach for new policy levers, regulation or sanctions. Sometimes industry captains get together to try to find an answer. In conference after conference, people discuss the change that needs to be seen, usually to little effect.
One of the problems is that incumbent players in an industry cannot alter their ‘basis for competition’ and no amount of top down pressure can change this. Professor Clayton Christensen of Harvard Business School explains in his research that innovation within an industry normally takes place to achieve incremental change rather than transformation. So transforming a market is extremely difficult. As a result, unsustainable factors which are inherent to industry models actually grow with the market themselves to become larger and larger challenges to society as a whole.
This is not just a private sector problem. In the UK, demand for healthcare has grown by four per cent every year since the inception of the NHS. Between 1997 and 2007, the NHS budget grew from £44bn to £96bn. This is 225 per cent more growth than the FTSE 100 index and 170 per cent more than GDP growth over the same period. The reason is that it is in hospitals’ interest to supply more services, even though they are a publically funded good. Yet this level of inflation in healthcare costs is definitely not sustainable, and represents a global challenge in the coming years. The incentives are backwards.
However, an anomaly to this is the technology sector. Unlike many other sectors, this industry consistently transforms itself, altering not only its own business models but also transforming how society functions. Why is this? Let’s consider some of the factors:
- The sector takes its inspiration from visionaries who have developed globally transformative solutions, starting from their garage. As Steve Jobs put it, it is the ones who are crazy enough to think they can change the world who usually do.
- Technology communities are well connected, allowing knowledge and communications to travel quickly, and enabling ideas to develop into solutions.
- The tech industry has enjoyed a disproportionate share of the global venture capital spend.
- Platforms such as Windows, Apple, and Google Android are making it easier for many people to develop applications for a mass market.
- Governments and organisations have set up technology hubs for entrepreneurs to test and grow their solutions.
For these reasons and many others, it has been possible for new people to enter the market and transform it from the bottom up. Better solutions and new business models have been able to displace those that don’t work as well. Yet if any link in this chain were removed, barriers would prevent this process. For instance, if VC finance were scarce in technology, then it would be harder for solutions to scale to the next level of development and incumbent players would maintain more control.
What has happened naturally in the tech markets is that the “right thing has been the easiest thing”. This has created a truly transformative, adaptive market. There are fewer barriers preventing someone from setting up an innovative global tech business than an innovative healthcare solution or a bank. Yet the sector has not collaborated at corporate levels, they have not looked to Davos for solutions and it has not been organised top down.
How can we apply this learning to other sectors? There are already some examples where markets have been rebalanced without the use of regulation. The Fairtrade movement has inspired innovation and sustainability in coffee, cocoa and many other supply markets where natural short term market forces were leading to unsustainability. Unsustainable supply is bad for growers, manufacturers, retailers and consumers; so the Fairtrade system has effectively a more balanced and prosperous outcome for all.
The same approach could be used in large corporations to solve endemic problems which conventional strategy fails to address. I have been working with The Fairbanking Foundation, an organisation that works with banks to create and certify new financial products that improve the financial wellbeing of their consumers. Some products make it easier for customers to make and reach savings goals; others help customers to better manage income and expenditure. Both improve market sustainability. And this type of innovation requires no regulation. It just uses the market.
Likewise, in healthcare, we are looking at the barriers that prevent ‘the right thing’ from happening. On this basis we are designing and implementing solutions to overcome these blockers. First, one of the most serious problems in healthcare is that health organisations are not assessed on the basis of the value they deliver to patients – that is, on the basis of positive patient outcomes for every pound spent. So we are developing a value based measure to make this easier. Second, healthcare organisations are unable to transform their service models to satisfy today’s needs. So we’re setting up public sector vehicles to test and scale new service models with the potential to better serve the needs of a target group. These come from healthcare practitioners, social carers or members of the community.
If market forces are causing a sustainability failure, then we must find solutions which alter the market dynamics in order to drive sustainability. The logic applies equally to private and state controlled markets, or to problems internal to corporations. All that is required is thinking differently about the problem. Instead of creating more regulation, what is needed is a strategy for taking away barriers for the market to correct itself. In other words, we need to find ways to make the right thing the easiest thing.