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.
Putting aside the euro-zone crisis, if there was one thing that came to dominate the financial news sheets this summer it was the near endless stream of stories about how the great and the good came to fiddle the taxman.
We heard of how the world’s super-rich had siphoned off as much as £13 trillion from their home countries into tax-free offshore accounts, how over 2,000 public sector officials came to enjoy preferential treatment at the expense of the taxpayer, and how everyone from comedians to Olympians to the prime minister himself became embroiled in tax loophole scandals. The issue even took centre stage in the US presidential election debates – it may still prove to be Mitt Romney’s Achilles’ heel.
Yet amidst all the furore, what riled people the most was the comment made earlier this year by David Gauke, exchequer secretary, who said that cash-in-hand work was “morally wrong.” The intriguing part of this story is that most of the anger was not directed at the people doing work off the books. Rather it was at those who deem such activity to be surreptitious and undesirable. A rough and ready YouGov poll undertaken at the time found that 75 per cent of Brits did not think it was ‘wrong’ to pay tradespeople in this way.
This begs the question, why do people appear so comfortable with cash-in-hand work? One explanation is because of the norms set by the wealthy elite. If the likes of oligarchs avoid paying taxes worth literally millions every year, why should the plumber or the taxi driver be any different?
Another reason is that people don’t feel as though hard working individuals are getting enough out of the state relative to what they are putting in. There are no doubt many families up and down the country who are asking themselves why they have to struggle to pay the price of higher taxes and cuts in public spending when they played little ostensible role in bringing about the financial crisis.
Whatever the cause, we appear to be at saturation point when it comes to demonising workers and entrepreneurs at the bottom of the ladder. That people may be forced into the informal economy through no fault of their own is something that support charities such as Community Links have been arguing for years. What has not been articulated so strongly up until now, however, is that the people who are working under the radar may in fact not just represent the downbeat and destitute but rather budding entrepreneurs with latent entrepreneurial assets.
Whether it’s plumbers, software developers, tutors or restaurateurs, there is evidence to suggest that tens of thousands of small business owners across the breadth of the UK currently engage in undeclared work as they seek to get their operations off the ground. Of the 1 in 5 small business owners we surveyed who said they had traded informally at one point in the past, 40 per cent said it was because it gave them the necessary breathing space before they had the capacity to register their business (see our new Untapped Enterprise report for more detail).
Of course, there are many entrepreneurs who trade in the informal sphere out of pure self-interest. Their goal is pure and simple: to avoid paying taxes that they could otherwise afford to cope with. But for all the stories we hear of deception and greed, there exist many other cases where entrepreneurs are excluded from the formal economy through little fault of their own. Taxes, red tape, a lack of financial credit and other barriers serve to make life untenable above the surface.
For these entrepreneurs, particularly small business owners, the informal economy is exactly the kind of protective environment they need to test their ideas and make their businesses more resilient and eventually profitable. It gives them the adequate breathing space before they can finally go on to make the transition to the legitimate economy. As such, the informal economy is an incubator, not just a refuge. To put it in Mitt Romney’s terms, it is a space for ‘makers’, not just ‘takers’.
If we accept this to be true, it is unwise to continue trying to address the prevalence of cash-in-hand work through measures such as penalties and sanctions that only treat it as though it were predominantly for the greedy and self-interested. Instead, we should be developing new support mechanisms that treat hidden entrepreneurs as aspirational, and which guide them along their slow and steady journey towards creating their own fully-fledged businesses.
Much more than this, however, is that everybody, whether policymakers or those in the business community, should be asking themselves one simple question: can we learn to live with the informal economy?